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.