Chairman of the Board and Chief Executive Officer of AT&T, C. Michael Armstrong
Facing pressure from shareholders and the strong pull of the inevitable, AT&T CEO Michael Armstrong said Wednesday that he would indeed be getting back to the table with Comcast to discuss the father-son Philadelphia cable empire's $58 billion ($44 billion plus $14 billion in debt assumption) bid to merge with AT&T's soon-to-be-spun-off cable division, ATT&T Broadband.
"While we have no current plans to sell our broadband business, Comcast's offer is serious. And we are giving it serious consideration," Armstrong said in a speech to the Boston Chamber of Commerce. "The offer recognizes at least some of the value that we've created in AT&T Broadband. The question is whether it recognizes the right value."
In other words, if Armstrong's going to get humiliated, he wants more money. The CEO started at AT&T promising to make Ma Bell into a one-stop-shop for local, long-distance and high-speed Internet services — which spawned his acquisitions of cable guys Tele-Communications Inc. and MediaOne (the latter in an 11th-hour, Comcast-topping bid that president Brian Roberts never forgot) for a total $90 billion a few years back.
It didn't exactly work out. Wall Street decided that the $56 billion Armstrong had paid to scuttle Comcast's planned $48 billion MediaOne purchase was a fool's price, and AT&T has been struggling ever since — selling off $18 billion of those assets and ultimately embarking on the ongoing tracking-stock breakup plan that haunts the company now — to get its stock price back up.
Armstrong had big dreams for the Broadband division, including the one where he ran it himself. But the reality that the CEO couldn't escape this week is that when Comcast — an exquisitely well-run cable operation with the highest profit margins in the business — made its unsolicited bid, AT&T stock immediately bounced up $1.98, or 12 percent, creating an immediate pop of $6.8 billion in shareholder value.
Armstrong blames AT&T's own anemic margins on expensive upgrades that will pay off down the road when movies on demand are the thing and the broadband glut turns back into a scarcity. But a CEO's first obligation is to his shareholders, and the shareholders are restless.
So it seems as if Armstrong's new plan is to get those shareholders a big fat buyout — in the form of lots of shares in the profitable Comcast — and call it a day. Certainly Comcast's $58 billion offer — made loudly to shareholders Monday after Armstrong balked too many times in private — was just an opening bid; no decent M&A gets done at first sight. And Armstrong can wait.
"Before we can take a position on their offer, we have to make sure that we truly understand it," Armstrong said Wednesday. "So AT&T's management and board will go through Comcast's proposal very carefully to determine whether it is the best way to achieve our goal of creating long-term shareowner value. That could take some time to do thoughtfully."
The fact that regulators aren't likely to stand in the way of a merger between No. 1 cable guy AT&T and No. 3 Comcast — FCC rules limiting the size of cable companies are falling fast in the Bush regime — may bring other suitors to Armstrong's door, helping him drive the price up. But the best thing about a Washington-blessed Comcast-AT&T Broadband marriage is the company it creates: the largest cable and Internet-access company in the world, managed by Comcast's proven money-makers and boasting not only tens of millions of subscribers but dominant positions in eight of the nation's ten biggest media markets.
That sounds pretty good to AT&T's shareholders — it's more or less what Armstrong promised but never delivered — and it might be Armstrong's last best chance to leave a good taste in their mouths about his ambitious but disappointing tenure.
But he's got to get at least $70 billion to feel good about it.