Investment Update

Microsoft played an important behind-the-scenes role as the third-largest U.S. cable TV provider, Comcast, acquired nation-leading AT&T Broadband in a deal worth US$72 billion. Microsoft also invested US$500 million in a South Korean telephone company and announced a delay in the sale of travel site Expedia to content company USA Networks.

Microsoft in the Comcast-AT&T Deal

Microsoft, which already had a stake in both Comcast and AT&T, cleared the way for Comcast’s purchase of AT&T Broadband by agreeing to lighten the debt load of the combined company. Specifically, Microsoft agreed to convert its AT&T preferred securities—which it purchased for US$5 billion in May 1999, and which required AT&T to pay Microsoft a yearly dividend—into regular shares of the new company. By converting the shares, Microsoft reduces the new company’s dividend obligation (which can be viewed as debt) and leaves it more cash for building new business and acquiring new customers. The new company will have approximately 21 million cable TV subscribers in 41 states, 2.2 million cable Internet access subscribers and, according to AT&T Chief Financial Officer Chuck Noski, is expected to bring in US$18 billion in annual revenues.