January 31, 2005 11:48 AM PST
SBC to acquire AT&T for $16 billion
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brand will be used. AT&T's brand is well-established, especially among large corporate customers, whereas SBC has been a regional telecommunications carrier, with its main presence in the western and southwestern states.
"We value the heritage and strength of the AT&T brand, which is one of the most widely recognized and respected names throughout the world, and it will certainly be a part of the new company's future," Whitacre said.
SBC, meanwhile, has a strong presence in the local market with 52 million phone lines and 5.1 million DSL lines. That presence in the local consumer market contrasts with AT&T's decision in July to forgo pursuing new local customers and focus instead on corporate accounts.
Ma's home...but will the kids start squabbling?
Monday's deal will also bring full circle what was once AT&T's wireless service. Four years ago, Ma Bell spun off its wireless operations in a $10 billion IPO as part of a major restructuring, forming the independent AT&T Wireless. But last year, AT&T Wireless was sold to Cingular Wireless, a joint venture in which SBC holds a 60 percent ownership stake. The other 40 percent of Cingular is owned by BellSouth. Cingular has a temporary license to use the AT&T Wireless brand while it transitions the service off of the AT&T-based name and logo.
Some analysts, however, expressed concern that the Cingular joint venture could be strained as a result of the AT&T deal.
"It's inevitable that this merger will create friction between SBC and BellSouth," said Viktor Shvets, an analyst with Deutsch Bank North America. He said the deal makes SBC a larger competitor to BellSouth. Also, a merger between SBC and BellSouth--long a prediction of industry watchers--could face stiffer antitrust hurdles with the addition of AT&T's assets.
Whitacre dismissed concerns about the BellSouth partnership.
"We have a great relationship with BellSouth. I don't anticipate there will be any problems for Cingular, and this will actually help them pick up more business customers," Whitacre said.
The deal takes place as AT&T is abandoning the residential phone business, which it invented 130 years ago. Since the break-up, AT&T has relied on Federal Communications Commission rules that guaranteed it access to the network it once owned and that also regulated the terms and prices local phone monopolies could demand from rivals seeking to rent parts of their networks. When those rules phased out in late 2003, many analysts predicted an uneven playing field among companies seeking to offer phone and broadband service.
AT&T had meant to rally, making 2004 the "Year of the Giant" with its CallVantage phone service. The Internet telephony plan was intended to help Ma Bell, remain in the residential phone market, and maybe even thrive there. But the number of CallVantage subscribers may be less than 100,000, according to a source, which puts in doubt whether AT&T will meet its goal of attracting a million subscribers by year's end.
Consolidation: Is it the new black?
The merger is also expected to stir up further consolidation in the market, Shvets said. MCI, AT&T's top competitor, could be the next acquisition target. Analysts say it makes sense for any of SBC's fellow Baby Bells--Verizon, Qwest Communications, or BellSouth--to acquire MCI.
"When one company gets bigger like this, everyone else starts looking around for opportunities," Shvets said. "It's like a mudslide. Once it starts, you can't stop it. You just have to grab the twigs on the way down."
The process of closing the deal may take longer than most mergers, due the regulatory climate that governs telecom companies. SBC will need approval for the deal from 26 to 28 states, the U.S. Department of Justice and the Federal Communications Commission.
Under the deal, AT&T shareholders will receive 0.77942 shares of SBC common stock for every share of AT&T, which translates into $18.41 a share. AT&T investors will also receive $1.30 a share in a special dividend. The deal is expected to close in the first half of next year.
News.com writers Maggie Reardon and Ben Charny contributed to this report.
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