AT&T: Subdued support

AT&T directors' rejection of Comcast's $58 billion bid for the telco's cable division left room for Comcast to come back for another round, but board members didn't express much enthusiasm for AT&T Chairman Mike Armstrong's plan to create a tracking stock around the cable unit.

Everyone—including Comcast execs—knew that the AT&T board would reject the first offer. Who would ever take the first offer? The key is that the board delayed the planned August shareholder vote on creating a tracking stock around AT&T Broadband. That gives Comcast time to regroup for a higher offer and AT&T time to scrounge for another suitor to spark a bidding war.

Comcast is widely expected to increase its bid for the systems up to 10% and agree to acquire, and resell, AT&T's 26% stake in Time Warner Entertainment and its 30% stake in Cablevision Systems Corp. Combined those are worth about $14 billion.

But Comcast is not likely to up its bid quickly, waiting instead to see if a rival suitor actually materializes. "Why would we bid against ourselves at this point?" asked one Comcast executive. "The amount of brainpower being spent on figuring out who else is there is incredible."

AT&T execs are hoping that one of the many media players thought to be studying an offer—AOL Time Warner and The Walt Disney Co. are most frequently cited by media and Wall Street executives—actually steps forward.

But even if they don't bid, AT&T is launching a campaign to justify a higher valuation than the one Comcast has put on it. The company will hold a teleconference with analysts and money managers Tuesday afternoon to outline the operations of the cable unit in greater detail than will be covered in today's release of companywide earnings for the second quarter. The goal, one adviser to AT&T said, is to convince Wall Street that AT&T Broadband's operations are turning around and are worth more than the $4,000 per subscriber Comcast is offering.

What some Wall Street execs find surprising is that AT&T seems to have gone instantly into sale mode. The statement issued by the board gave no particular support to Armstrong's tracking-stock plan, instead telling management to examine "strategic alternatives." Sanford Bernstein & Co. media analyst Tom Wolzien said, "There's nobody in there saying, 'We know that we're right in the approach we're taking; let's stick with it.'"

AT&T sent a letter to Comcast Wednesday afternoon saying that "the board determined that Comcast's proposal did not reflect the full value of AT&T Broadband." The company also reiterated concerns about Comcast's management structure in which the Roberts family's supervoting stock would give it 45% of shareholder votes despite holding just 1% of the company's equity.

Comcast chief Brian Roberts responded in a statement, "We disagree with the AT&T board's characterization of our offer as inadequate. Since our announcement, AT&T shareholders have responded to our proposal by adding over $14 billion in market valuation to AT&T." Of course, that's in part from bets that higher bids and a bidding war will follow.