March 5, 2006 1:22 a.m. EST
AT&T Nears
$65 Billion Deal
To Buy BellSouth
By DIONNE SEARCEY, AMY SCHATZ, ALMAR LATOUR and DENNIS BERMAN
March 5, 2006 1:22 a.m.
AT&T Inc. is nearing the acquisition of BellSouth Corp. for roughly
$65 billion, people familiar with the situation said Saturday
evening. A deal could be announced as early as Monday, these people
said.
Final terms of the deal could not be learned Saturday evening, but
these people said AT&T Inc. would pay a premium for BellSouth shares
of at least 15%, valuing the company at $36 per share at least, up
from its trading price Friday of $31.46. That would push the total
equity value of the deal to at least $65 billion, plus the assumption
of an additional $17 billion of BellSouth debt.
Spokespeople for BellSouth and AT&T declined to comment.
An AT&T-BellSouth deal would effectively cleave the nation's telecom
services in two, each vertically integrated with a local phone
operation, business services, and wireless unit. And it would
effectively validate the vision of competition laid out by the
government -- one in which traditional telecom firms compete directly
against cable operators rather than against each other. The move
would give AT&T Inc. sole control over Cingular, the nation's largest
wireless operator.
A combination between AT&T and BellSouth could have combined market
capitalization of nearly $160 billion, making AT&T far larger than
rival Verizon. The deal would nonetheless set a showdown between AT&T
and Verizon, as the two fight to control wireless, the growth portion
of the telecom business.
It was the steep growth of Cingular -- joint owned by BellSouth and
the former SBC -- that helped push the two firms together, say
telecom bankers familiar with the space. As the importance of the
wireless business grew, they say, it became inevitable that SBC
(which adopted the AT&T name just months ago) would consolidate its
position in the South.
Put together, the SBC territory would extend from California to
Florida, north to Illinois and south to Texas. Combining the two
companies' current market capitalizations, AT&T would have a market
value approaching $150 billion, over 50% greater than Verizon.
AT&T chairman and chief executive Edward Whitacre has made a name for
himself in the telecommunications industry as a serial acquirer.
Mr. Whitacre is able to boast of a string of acquisitions including
Pacific Telesis Corp., Ameritech Corp. and Southern New England
Telecommunications Corp. But as he nears retirement the market had
been anticipating one last hurrah from him; a BellSouth acquisition
by AT&T has long been the subject of speculation from analysts,
investors and the two companies' rivals.
Still the speedy move to acquire BellSouth came as a surprise so soon
after Mr. Whitacre's takeover of AT&T Corp. last fall. His company is
just starting to digest the $16 billion acquisition. The former SBC
Communications Inc. took over AT&T Corp. and adopted the AT&T
moniker. The new company dominates nearly every aspect of the
industry, from high-speed Internet connections to long-distance phone
service, as well as wireless. And Mr. Whitacre now has access to the
old AT&T's enterprise business and world-wide network.
Such a deal would likely prompt howls of protest in some quarters as
it comes on the heels not only on the heels of the AT&T-SBC deal but
also after Verizon Communications Inc.'s acquisition of MCI. Those
deals were approved with only a few minor conditions despite concerns
they would lead to higher prices for business customers.
The wave of mergers has dramatically reshaped the telecom industry,
and a purchase of BellSouth would further cement the recreation of
the old Ma Bell, which the government pushed to break up in 1984.
The management of AT&T, which has apparently briefed key senior
government officials late last week, appears to be betting that the
Bush administration and a Bell-friendly Federal Communications
Commission won't raise too many obstacles for such a deal, arguing
that the companies serve different geographic regions and do not
currently compete with one another in a significant way.
Although AT&T and Verizon's last mergers passed both FCC and Justice
Department review with little major problems, the latest proposed
merger may face more hurdles. Recent comments by AT&T and BellSouth
executives about their intentions to explore new revenue streams from
their high-speed Internet services by introducing two-tier
or "premium" service for Internet content providers. Concerns about
those plans and the concept of "net neutrality," or ensuring that
consumers have open access to all Internet sites and services and
businesses do not find their content slowed, has become a major
problems for the Bells in Washington.
Meanwhile, the FCC that will be reviewing the AT&T/BellSouth deal
will likely be a much different body soon with the addition of Robert
McDowell, a veteran telecom lawyer who currently serves as assistant
general counsel at Comptel, which represents smaller telephone
companies and was a vocal opponent of the AT&T and Verizon mergers
last year.
Mr. McDowell is scheduled to appear before a Senate committee on
Thursday for his confirmation and is likely to be asked about the
merger. Although Mr. McDowell is a Republican, his nomination to the
FCC was met with noticeable unease by the Bell companies, which have
privately expressed some concern his experience working with smaller
competitors may make him less than sympathetic to their concerns.