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SBC To Buy Former Parent AT&T For $16 Billion
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SAN ANTONIO, Texas -(Dow Jones)- SBC Communications Inc. (SBC) confirmed Monday morning that it will buy its former parent, AT&T Corp. (T), for $16 billion, in a deal that could prompt other telecommunications titans to seek out their own combinations.
As reported Sunday by The Wall Street Journal, SBC will pay about $15 billion in stock and an additional $1 billion in the form of a special dividend to buy Ma Bell. The deal was approved by SBC's board early Sunday evening, while AT&T's board gave the transaction a green light just before 1 a.m. EST, according to a Journal report.
SBC said in a press release that AT&T shareholders will receive a total consideration of $19.71 a share in the deal, which will be tax-free for AT&T shareholders. AT&T's shares closed at $19.71 a share on Friday in the New York Stock Exchange. SBC shares closed at $23.62 a share Friday.
AT&T stockholders will get 0.77942 shares of SBC stock for each share of AT&T. Based on SBC's closing stock price on Jan. 28, this exchange ratio is equal to $18.41 a share.
In addition, upon closing AT&T will pay its shareholders a special dividend of $1.30 a share.
SBC expects its purchase of AT&T to close by the first half of 2006, and the deal is expected to create more than $15 billion in cost synergies, net of the cost to achieve them. Nearly half of the deal's potential cost savings will be found in network operations and information technology. The combined SBC/AT&T will realize these synergies specifically through facility and operational consolidation.
The combined entity will realize another 25% of the estimated total cost savings through the combination of both companies' sales and support functions. The company will realize about 10% to 15% of the total synergies through the elimination of duplicate corporate functions. The remainder of the cost savings will come as the combined company moves service offerings to new customer segments.
SBC expects that its AT&T purchase will slow its revenue growth in the near term, following the deal's closing. The transaction will be cash flow positive in 2007 and will be accretive to earnings per share in 2008.
SBC's Edward E. Whitacre Jr. will retain his positions as chairman and chief executive of the newly combined company. Whitacre, 63 years old, is credited with building SBC from the smallest of the Baby Bells to the largest in the United States.
AT&T's Chief Executive David Dorman will, under the terms of the deal, get a seat on the company's board and take the title of president of the combined entity. Two other members of AT&T's board will get board seats at the new company, which will be based in San Antonio. SBC also said it will continue to use the AT&T brand name.
"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.
AT&T, because of the deal, will cease to be a stand-alone company. Its history is long and storied, encompassing 130 years and the entire existence of telephony. The company, based in Bedminster, N.J., has been on a sharp decline since it was broken up into regional bell operating companies, or RBOCs, in 1984. It still has a strong stable of business and government clients, a roster that SBC covets.
With this deal, SBC is seeking to create the nation's largest telecom carrier. The Journal reported Sunday that the combined entity will dominate business services, cellular phones, and residential long-distance and telephone-based Internet broadband access. In addition, the combined company is second only to Comcast Corp. (CMCSA, CMCSK) in the residential broadband market.
Specifically, SBC boasts 52 million access lines, 5.1 million DSL Internet lines and a local broadband network covering 77% if its local customer locations.
In addition, SBC owns 60% of Cingular Wireless, the Unites States' largest cellular phone company with 49 million subscribers. The remaining 40% of Cingular is owned by BellSouth Corp. (BLS). That wireless dominance was made all the stronger when Cingular agreed nearly a year ago to buy AT&T Wireless Services Inc. (AWE) for $41 billion in cash.
The Wall Street Journal, quoting research analysts, reported that the SBC/AT&T deal could set off a wave of consolidation among other large players in telecommunications. Companies like Verizon Communications Inc. (VZ), BellSouth, and MCI Inc. (MCIP) could end up seeking merger partners.
-Thomas Derpinghaus; Dow Jones Newswires; 201-938-5400; asknewswires@dowjones.com
(END) Dow Jones Newswires"
Tags: [wall street journal] [texas] [at&t wireless] [comcast] [verizon communications] [wave] [mci]
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