Update: SBC to acquire AT&T for $16 billion

The companies don't expect deal to close until first half of 2006

SBC Communications plans to acquire AT&T in a deal worth $16 billion, the company said in a statement Monday. The deal will create the largest telecommunications carrier in the U.S.

The acquisition will be "great for the stockholders," with the merged company expected to be cash-flow positive in 2007, Whitacre said in an investor conference call Monday. "We will position SBC to be the prototype 21st-century communications company in America today," Whitacre said.

Whitacre will remain in his current position, while AT&T Chairman and Chief Executive Officer David Dorman will become president of the merged company, to be based in San Antonio, Texas, where SBC has headquarters.

Under terms of the agreement, shareholders of AT&T will receive 0.77942 shares of SBC common stock for each common share of AT&T, the statement said. Based on the Jan. 28 closing price of SBC's stock, this exchange ratio equals $18.41 per share. In addition, AT&T will pay its shareholders a special dividend of $1.30 per share, bringing the total consideration for each AT&T share to $19.71, and valuing the deal at around $16 billion, it said.

Officials of both companies trumpeted the acquisition as a way to combine their strengths and cut costs, or achieve "synergies," as they called it. The combined company will be able to eventually achieve $15 billion in cost savings, with up to $2 billion a year by 2008, by combining functions such as IT, sales and headquarters support, said Randall Stephenson, SBC chief operating officer.

Nearly half of that cost-savings will come from combining IT and networking operations, he said. The combined savings will be on top of cost-cutting measures the two companies already have in place.

"Of all the transactions I have been associated with, this deal has the greatest opportunity for synergies that I have ever seen," Stephenson said. "The synergies are straightforward, they're clear."

With the acquisition, SBC gains AT&T's enterprise-focused telecommunications business, which serves "virtually all" of the world's Fortune 1000 companies at some level, according to Dorman. AT&T also brings SBC one of the largest existing IP (Internet Protocol) networks, and one of the "world's strongest brands," Whitacre said.

The acquisition will not mean the end of AT&T, Dorman said. "This deal is the logical next step in the evolution of both companies," he said.

Although the role of the well-known AT&T brand name in the new company is still unclear, it will not disappear, according to Whitacre. "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 part of the new company's future," he said in the statement.

The acquisition, which is subject to approval by AT&T's shareholders and U.S. regulatory authorities, is expected to close by the first half of 2006, the statement said. The U.S. Department of Justice and U.S. Federal Communications Commission must approve the deal, SBC officials said.

The combination of AT&T and SBC will reunite "Ma Bell" with a "Baby Bell," a union that former U.S. Federal Communications Commission chief Reed Hundt called "unthinkable" in the late 1990s.

But AT&T's market dominance has shrunk steadily since the government broke up its monopoly in 1984, splitting the operator into seven local Bell operating companies and a long-distance operation.

In a move to expand beyond its core long-distance business, which had come under fierce price pressure, AT&T spent billions early last decade to acquire a mobile phone operator and broadband cable companies. Struggling under its huge debt, AT&T was later forced to shed its wireless and cable operations. AT&T Wireless Services was acquired by Cingular Wireless, a joint venture between SBC and BellSouth.

SBC, which has grown from the smallest of the Baby Bells to become a company with more than 50 million local-calling customers, had been looking for ways to make inroads with large business and government customers, both in the U.S. and globally.

AT&T serves almost every Fortune 1000 member. Moreover, the company has one of the world's largest communications networks, spanning more than 50 countries. It operates 26 Internet data centers, half of which are in the U.S.

For AT&T, the acquisition will end its more than 125-year history, which began with the invention of the telephone.

The announcement of a deal between the two companies had been expected. Last week, The New York Times and The Wall Street Journal newspapers reported that SBC and AT&T were in talks about a deal that would create the largest telecommunications carrier in the U.S.

(Sumner Lemon in Taipei contributed to this report.)

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