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SBC to acquire AT&T for $16 billion
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AT&T became the largest phone company in the United States after local phone company SBC Communications acquired long-distance carrier AT&T last year for $16 billion. The company, which changed its name after the acquisition was completed, serves 13 states, mostly throughout the western and southwestern parts of the country.
AT&T on Monday said it expects to cut some 10,000 jobs between 2007 and 2009, once the acquisition has closed.
Combined with BellSouth, the third-largest local phone company in the country, AT&T will pick up another nine states in the Southeast to provide service in a total of 22 states. The combined company would generate about $130 billion in sales and serve nearly 70 million local phone customers.
In addition, AT&T will take full control of Cingular Wireless, a joint venture owned by AT&T and BellSouth. AT&T already owns 60 percent of Cingular, which is considered the largest cellular phone company in the U.S., providing service to more than 54 million subscribers in the United States.
"The Cingular partnership and the company itself are performing extremely well, particularly after the AT&T Wireless acquisition," AT&T Chairman and CEO Edward E. Whitacre said in a statement. "But no partnership between two independent companies, no matter how well run, can match the speed, effectiveness, responsiveness and efficiency of a solely owned company."
The deal is likely to rattle consumer groups, which opposed the $16 billion merger between SBC and AT&T last year. The fear among these groups is that the telecommunications market is consolidating too much, leaving fewer choices for consumers. But regulators thus far have not bought into this argument.
The main reason for this is that the local phone companies do not compete directly with each other. They operate in different regions of the country. Supporters of the megamergers also argue the phone companies are facing stiff competition from cable companies, which are now offering phone service along with television service and high-speed Internet access.
The competition has gotten so tough between cable operators and the phone companies that AT&T and Verizon, the second-largest phone company in the country, have spent billions of dollars during the past two years upgrading their networks to offer television service. Verizon is already offering TV service to consumers in several communities in Texas, Massachusetts, Virginia, and Florida. AT&T has begun testing its service in Texas and plans to offer it more widely later this year.
Whitacre called the deal "logical" in the company's press release announcing the acquisition.
"This merger is a logical next step that creates substantial value for customers and stockholders of both AT&T and BellSouth," Whitacre said. "We are confident that this is a merger we can execute, based on our track record with previous integrations and our experience working closely with BellSouth to create and build Cingular Wireless, and operate Yellowpages.com."
AT&T's latest move will likely have repercussions throughout the industry. For example, it could force Verizon to make a play for Qwest Communications, the fourth surviving Baby Bell operating company.
Verizon announced its bid for long distance carrier MCI last year after SBC had announced its acquisition of AT&T. Verizon entered a bidding war with Qwest Communications , which offers local phone service and high-speed Internet access to customers in 14 western states. Eventually, Verizon paid $8.44 billion for the formerly bankrupt MCI .
AT&T's move to acquire BellSouth could also spur Verizon into action on the wireless front. Currently, it jointly owns Verizon Wireless with European carrier Vodafone. Verizon's CEO has mentioned on several occasions that he is interested in buying Vodafone's 45 percent stake in the wireless company.
Under the terms of the proposed merger, BellSouth shareholders will receive 1.325 shares of AT&T common stock for each BellSouth common share. Based on AT&T's closing stock price on Friday, the deal will be worth about $37.09 for each BellSouth common share. That represents a 17.9 percent premium over BellSouth's closing stock price on Friday, and it puts the current value of the deal at approximately $67 billion.
The merger, which is subject to approval by shareholders of both companies, as well as regulatory authorities, is expected to close within the next 12 months, the company said.
Reuters wire service contributed to this report.
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lawyers, are simply groups that detest industry and adore
government. You never hear them criticize government
monopolies.
This will be a good deal for consumers and stockholders. As
recent reports indicate VoIP use is skyrocketing, and there will
be enormous competition for local phone service. Cable
companies, VoIP, and services delivered by power line, are all in
play. Additionally, Americans are increasingly ditching their land
lines for cell phones, where competition is fierce.
The usual suspects will cry wolf, but this will benefit consumers.
Yuck. Stupid FCC.
the corporate board rooms and in the halls of the DOJ. We live in
times where unapologetic scoundrels rule without fear of
reprisal.
No doubt, there will be public hearings on this merger. Allow me
to sum them up in advance. Here's how the dialog will go:
Consumer Groups: "This merger will limit competition, increase
prices, hurt consumers, create a huge unregulated monopoly
and serve only to enrich a handful of people."
Bush's DOJ: "Yeah. So what's your point?"
"BellSouth.com offers online features that only work with newer browsers. To shop for our products, manage your accounts, find out more about BellSouth, or to contact us online, please choose one of these browsers:
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If you choose not to upgrade your browser, we regret that our website will not function properly for you at this time."
As for the imperialistic AT&T, my prediction is that as these telco behemouths consolidate, a greater and greater amount of money will be spent on advertising and proliferation of retail stores and less and less on actual technology innovation. The ink was barely dry on the AT&T/SBC merger when I received in the mail a glossy, expensively produced AT&T product catalog. Much todo was made of the various bundled plans, none of which really made much sense. And why anybody would want to buy an AT&T branded MP3 player is beyond me.
As for the cellular part of this new merger, I just have to chuckle. I have AT&T wireless, which then became Cingular, and is now on its way to becoming AT&T yet again -- full circle in only 2 years. I opted to not "join" the Cingular family a year ago when a hapless rep told me that I would have to apply for a Cingular account just like any stranger on the street, and would have to start a plan term commitment all over again. I now gleefully hope that Cingular customers will be welcomed into the AT&T family and be offered their own new term commitment plan by AT&T with no credit for prior service from Cingular. Don't you just love the square wheels that these folks sell.
customers, maximize the bonuses, then run like hell.
"Exclusive control by one group of the means of producing or selling a commodity or service"
If AT&T has local, LD and Wireless service they are not a monopoly. They do not control an entire service. We as consumers have choices in who gets our communication business. If you do not like AT&T or Cingular go with T-Mobile, Sprint, or Verizon. Go with your local cable provider or Vonage for your phone service.
Bell South local and SBC do not compete. They may compete on the L/D front but there are still L/D choices of you want to go that route.
If AT&T and Verizon merged then you would have a monopoly. The environment is completely different than the 70's and ma bell. There was only one choice and it was ma bell.
It's understandable to be unhappy with the merger, but these are two independent companies and should be able to merge if they see fit. Competition will still exist and as such we are not in a position to stop it.
Answer: not much.
Arguably it helped cause compition in the telecom marketplace but that was simply a way for the 4 holding companies to get more money. In the heat of the confusion after the divestiture the FCC allowed many to raise local prices under the excuse that they had more costs. When in reality they just wanted higher margins and more profit for what they were already doing.
Now we see AT&T buying up 2 of the 4 companies that came out of that landmark (and often referranced) DoJ win. Which will leave us 3 megacorps and an case study of how a win can ultimately be a loss for the general public.
As a consumer I wonder just what side is the FCC and the DoJ on?
levels.
But just you watch. Management will toss 10,000 employees out
on the street, and then collect bonuses for cost reductions. And
the poor guy on the street gets to apply for welfare- at the
government's expense - except that you and I pay that expense
with our taxes.
Big savings for AT&T, right?
- Those screaming "monopoly" really just don't get it
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by
March 6, 2006 12:05 PM PST
- First off, please look at the dictionary definition of "monopoly" again before you spout off. Secondly, how does this merger generate a "monopoloy" in the telecommunications business? Verizon will still be a significant competitor to the new AT&T (and will likely only get bigger itself) and is already pushing its FiOS fiber-to-the-home service into markets that are outside its traditional "Baby Bell" territory. You've got Comcast, Time Warner, Cox, Vonage, and others who now have millions of phone subscribers themselves... oh, and keep in mind that Comcast et al have pipes of their own so there's no worry about AT&T shutting off their access (which is an assanine presumption to begin with). So, please tell me how this new AT&T will possess a "monopoly"?
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Reply to this comment
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- here here
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by chuchucuhi
March 6, 2006 12:58 PM PST
- and people must understand we don't have monopolies in the U.S. we have oligopolies which can make it more difficult for a smaller individual or company to enter a market but not impossible.
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See all 40 Comments >>Also, how will this new AT&T "harm" either competition or prices? Actually, it will likely drive prices down... because now you'll have a company of significant heft that can take on a Verizon or a Comcast head-on and drive prices down. Imagine BellSouth trying to compete against 800-pound gorillas like Verizon and AT&T - if BellSouth was forced to lower prices to compete with that they'd go bankrupt! This is one of those markets where it's better to have two 800-pound gorillas duking it out (Verizon vs. AT&T) instead of a couple of itty bitty gorillas trying to pick a fight with the 800-pound one they'll never win.
This is all the same BS so-called "consumer groups" use against every large merger or acquisition. It was used against Oracle, too. Someone please tell me how Oracle, with only about 10% of the business apps market before its acquisition spree, would have ever been formidable competition to SAP, the 800-pound gorilla in the space? Would PeopleSoft, Siebel, or JDEdwards have been much of a threat to SAP on their own? Not hardly. So, the market needed another 800-pound gorilla like Oracle to actually give SAP some REAL competition. How are consumers helped when the one fighting on their behalf isn't even big enough to make the market dominator bat an eyelash?
I know many of you will scream, "what about Microsoft?" Well, Microsoft was a bit of a different animal in that A) it was an insurmountable obstacle for any logical competitor to achieve heft significant enough to give real competition to Microsoft and B) Microsoft abused its competitive position to INSURE that no logical competitor would ever be able to achieve a market position significant enough to challenge it. In this case, there's no way this new AT&T can be Microsoft... not with other 800-pound gorillas like Verizon and Comcast still in the ring ready to duke it out. Therefore, this merger in the end will only be GOOD for consumers because it will bring reasonable and serious competition to this market.