AT&T Settles Suit With At Home Bondholders
May 4–The bankruptcy of high-speed Internet provider At Home was one the biggest collapses of the dot-com boom. Now it has resulted in one of the largest legal settlements to emerge from the bubble era to date.
On Tuesday, AT&T announced that it had agreed to a $400 million settlement to end a lawsuit filed by At Home bondholders. The bondholders claimed that AT&T had used its role on At Home’s board to steal trade secrets and hasten the demise of the broadband company.
The settlement includes a payment of $340 million in cash to the bondholders and the release of $60 million that AT&T had placed in a reserve fund. Because Comcast bought AT&T’s cable television assets in late 2002, it will pay half of the cash portion of the settlement.
After the settlement was announced, Comcast said the cash payment would cut its first-quarter earnings by half. In addition, Comcast and fellow cable company Cox are still the target of a separate lawsuit brought by the same bondholders.
Because the settlement must still be approved by a U.S. bankruptcy court, most parties declined to discuss the case on the record. However, in a statement issued Tuesday, the plaintiffs in the case praised the settlement.
“Today’s $400 million settlement vindicates the decision we made to pursue litigation against AT&T,” said Don Morgan, senior managing partner of MacKay Shields.
An AT&T spokesman declined to comment.
MacKay Shields is part of a committee of bondholders who were owed $750 million when At Home filed for bankruptcy. As part of the liquidation of the company, the bondholders were awarded the right to pursue litigation surrounding At Home’s collapse.
While many lawsuits stemming from the dot-com era are still winding their way through state and federal courts, the AT&T payment already ranks among the largest tech-related settlements. Only the settlements reached in cases involving WorldCom and Lucent Technologies have led to bigger payouts.
At Home had filed for bankruptcy in September 2001. The bondholders filed the lawsuit in 2002 and a trial was scheduled to begin this week in Santa Clara County Superior Court.
In the lawsuit, bondholders claimed AT&T had abused its insider knowledge of At Home’s business.
At Home was originally created in the mid-1990s by a group of cable companies, including AT&T, Comcast and Cox and other outside investors to build a network that would deliver high-speed Internet access over cable lines. At Home later merged with the search engine Excite.com, in one of the biggest mergers of the dot-com era.
As the Internet frenzy grew, At Home seemed poised to be one of the big winners. It moved into a giant headquarters along Highway 101.
But a series of bad business decisions and squabbling with its investors doomed the company.
As trouble set in, AT&T bought out Cox and Comcast and became the majority owner of At Home in March 2000. According to the lawsuit, the bondholders claim that among other things, AT&T began secretly building its own high-speed cable network knowing that At Home was failing.
When At Home announced it was shutting down in late 2000, AT&T transferred many of its subscribers to its own network. Cox and Comcast had to continue paying additional fees to At Home until they could build their own networks, according to the lawsuit.
The settlement was announced after the close of trading. AT&T’s stock rose 14 cents Tuesday to close at $19.17. Earlier this year, AT&T announced it was being sold to SBC Communications in a deal that will probably close in early 2006.
Comcast shares climbed 2 cents to close at $32.17.
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