Archive for Monday, March 6, 2006

AT&T reaches deal to reconnect with Baby Bell

Purchase of BellSouth worth $67 billion

March 6, 2006


— 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 up 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.

Ma Bell's return?

AT&T; Inc., which was formed by SBC's acquisition of AT&T; Corp. in November, says it will acquire smaller rival BellSouth Corp. for $67 billion in stock, substantially expanding the country's largest telecommunications company by the number of customers served. Workers and customers: The merged company would employ more than 316,000 people to serve 70 million local-line phone customers, 54 million cell-phone users and 10 million broadband subscribers. What's next: The Cingular brand, already jointly owned by the two companies, will be phased out in favor of the AT&T; brand.

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.

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 Kansas, 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.


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