Mergers & acquisitions

Ma Bell Is Back!

As rumored for weeks, Ma Bell is back with a vengeance. (See Is an SBC/BellSouth Merger Next?.)

AT&T Inc. (NYSE: T) and BellSouth Corp. (NYSE: BLS) have agreed to merge in a blockbuster $67 billion deal, the two companies said in a statement on Sunday.

As part of the deal, shareholders of BellSouth will get 1.325 shares of AT&T stock for each share of their BellSouth stock. Based on AT&T's closing stock price on March 3, this exchange ratio equals $37.09 a share -- a premium of nearly 18 percent over BellSouth's closing price on March 3.

And, though the merger would represent a further undoing of the monopoly breakup of the old AT&T, the two companies, in a statement Sunday, said that the combination would promote competition.

"Since AT&T and BellSouth are not actual competitors in the local, long distance and video markets, and because BellSouth is not a significant competitor with AT&T in the enterprise market, the merger will not reduce competition in any of those markets," the statement said.

And, the post-merger company will be under one name and one brand -- AT&T, the statement says. Former SBC CEO Ed Whitacre will serve as chairman and CEO of the newly formed company. BellSouth CEO Duane Ackerman will serve as chairman and CEO of BellSouth operations for a transition period following the merger, the statement says.

The merger will have a simplifiying effect on the wireless landscape. Both companies now jointly own Cingular, and, under an AT&T/BellSouth combination, Cingular would be under one company and one brand.

AT&T and BellSouth say they'll mutually realize some $18 billion in cost savings from combining the two telecom empires. Much of that savings will come from reduced costs in the operations of unregulated and interstate services, shedding loads of corporate staff, and some "productivity improvements," which weren't specified in the company press release.

AT&T says its financial outlook for 2006 hasn't changed. (See AT&T Updates 2006 Plans and AT&T Shines a Light on Lightspeed.) It continues to expect double-digit adjusted EPS growth in each of the next three years with significant growth in free cashflow after dividends. The carrier's free cashflow after dividends is expected to exceed $4 billion in 2007 and $6 billion in 2008.

The deal is expected to close within 12 months.

— Phil Harvey, News Editor, Light Reading

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