AT&T to Buy BellSouth for $67B in Stock
By HARRY R. WEBER, AP Business Writer
AT&T Inc. is buying BellSouth Corp. for $67 billion in stock in a bid
that further consolidates the telecommunications industry and would
give AT&T total control of their growing joint venture, Cingular
Wireless LLC.
The proposed purchase, announced Sunday, also goes a long way toward
resurrecting the old Ma Bell telephone system, which was broken apart
in 1984.
The merged company would have 70 million local-line phone customers,
54.1 million wireless subscribers and nearly 10 million broadband
subscribers in the 22 states where they now operate. The deal appears
to be the largest yet among U.S. telecom players.
In 1999, MCI WorldCom Inc. agreed to buy Sprint Corp. for an even
larger sum, $115 billion, but that deal was blocked by federal
regulators. Internationally, Britain's Vodafone Airtouch PLC paid
$180 billion in stock for Mannesmann AG of Germany in 2000.
The sale, which is subject to regulatory and shareholder approvals,
would give San Antonio-based AT&T total control over Atlanta-based
BellSouth's nine-state network and its share of Cingular. AT&T
currently owns a 60 percent share of the nation's No. 1 cell phone
provider, while BellSouth has 40 percent.
The deal would substantially expand the reach of AT&T, already the
country's largest telecommunications company by the number of
customers served.
Together, the three companies employ more than 316,000 people, though
that head count may fall as AT&T eliminates redundant operations.
After spending millions of dollars to rebrand AT&T Wireless Services
Inc. stores as Cingular stores and hundreds of millions of dollars
more on marketing the new Cingular after its $41 billion acquisition
of AT&T Wireless in October 2004, Cingular will now become AT&T if the
merger with BellSouth is completed.
The BellSouth name also would be absorbed in the deal.
"It's going to be confusing," said industry analyst Jeff Kagan. "This
is the reinvention of the telecommunications industry."
AT&T will pay 1.325 of its own shares for each BellSouth share. Based
of Friday's closing price of $27.99 for AT&T shares, that works out to
be $37.09 for each BellSouth share, an 18 percent premium from the
Friday closing price of $31.46 for the company.
AT&T Inc. was formed by SBC's acquisition of AT&T Corp. in
November. The deal added a substantial national reach to the former
Southwestern Bell's local business, which is concentrated in 13
states, including Texas, California, and the Midwest.
BellSouth is the dominant local telephone provider in the Southeast.
The shift in the U.S. telecom landscape -- moving from four to three
regional Bell operators -- is sure to garner close review from
Washington.
"Twenty years after the government broke up Ma Bell, this deal
represents a mother and child reunion," said Rep. Ed Markey, the
ranking Democrat on the House Subcommittee on Telecommunications and
the Internet.
"Our nation's telecommunications markets must be vigorously
competitive and open to innovation in order to promote job creation
and economic growth," Markey said. "This merger proposal is one that
unquestionably merits the utmost scrutiny by government antitrust
officials."
Cingular spokesman Mark Siegel dismissed the notion there would be
public perception issues with the switch back to the AT&T name for the
wireless company.
"We built a business," Siegel said. "Is the brand an important part of
that business? Yes. But it is a business that is made primarily up of
people. None of that changes."
Siegel said sole ownership by AT&T "gives us clarity of
decision-making, and that is a good thing."
With cable companies increasingly vying for traditional phone
companies' share of local telephone service, such mergers in the
industry have been commonplace of late. Kagan, the industry analyst,
said more could be on the horizon.
"We're not over it yet," Kagan said.
The combined company will be based in San Antonio, and Ed Whitacre,
AT&T's chairman and chief executive, will keep those positions. His
counterpart at BellSouth, Duane Ackerman, 63, will run BellSouth's
operations in a "transition period" after the merger.
Cingular's headquarters will stay in Atlanta, as will the Southeast
regional headquarters for the merged company.
Cingular has grown strongly since it was formed in 2001 by the merger
of a number of regional wireless carriers, and there has been
speculation that AT&T wanted to assume full control of this growth
business, in part to be able to market it under the AT&T name.
The wireless operations will be the growth engine of the new company,
and will account for one third of the combined revenue.
AT&T expects the acquisition to save it $2 billion annually, starting
the year after the deal closes. About half of the savings would come
from reduced advertising expenses and from combining their work
forces.
The rest of the savings would come from combining the backbone network
and information-technology operations of the two companies.
AP Technology Writer Peter Svensson contributed to this report from New
York.
On the Net:
AT&T: http://www.att.com
BellSouth: http://www.bellsouth.com
Copyright 2006 The Associated Press.
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