AT&T's Breakup There were seven after AT&T's breakup but the SBC-Ameritech mega-merger might change that

Electronic News, May 25, 1998 by Jeff Dorsch

SBC has been the most aggressive aggregator among the Baby Bells. Since Congress passed the Telecommunications Act of 1996, which paved the way for such mega-mergers as British Telecom-MCI Communications (later the MCI-WorldCom deal, still pending) and AT&T-Teleport Communications Group (also pending), SBC went out and last year bought its sibling, Pacific Telesis Group, for $16.5 billion, and it is in the process of acquiring Southern New England Telecommunications Corp. (SNET) for $5 billion.

Bell Atlantic last year acquired Nynex for $25.6 billion to create an East Coast telecom behemoth with 41 million phone lines in service. An SBC-Ameritech merger, however, would create a Baby Bell with 57 million phone lines, about one of every three phones in the U.S.

Four Would Remain

The four remaining Baby Bells would be Bell Atlantic, BellSouth in the Southeast, SBC in the central U.S. and California/Nevada, and U S West in the Rocky Mountain and Plains states, the Southwest and the Pacific Northwest.

Ameritech shareholders will receive a fixed-exchange ratio of 1.316 SBC share for each share of Ameritech. The transaction will be a tax-free, stock-for-stock exchange and will be accounted for as a pooling of interests. The combined company will be called SBC Communications and will be approximately 56 percent owned by SBC's existing shareowners and 44 percent by Ameritech's existing shareowners (ownership percentages are prior to SBC completing its merger with SNET).

The telecom companies expect to close the deal within a year; they will have to divest some cellular-service businesses, since federal law prohibits ownership of overlapping wireless licenses. The deal values Ameritech's stock at approximately $55.77 a share, 27 percent above its May 8 market closing value of $43-7/8 a share.

News reports pegged the value of the Ameritech acquisition at $55 billion to $57 billion. The companies said the agreement gives Ameritech "a total equity value" of $62 billion and "an enterprise value," including debt, of $71 billion. Whatever the dollar figure used, it clearly marks this as the largest telecommunications merger in U.S. corporate history, topping the Bell Atlantic-Nynex combination and the proposed merger of MCI and WorldCom, which values MCI at about $37 billion.

Ameritech, as a unit of SBC, will maintain its headquarters in Chicago and operate under the Ameritech name in the states of Illinois, Indiana, Michigan, Ohio and Wisconsin. Ameritech chairman and CEO Richard C. Notebaert will keep his job, and will join the SBC board of directors, along with four other Ameritech directors. But the man who will really be running the show is Edward E. Whitacre Jr., chairman and CEO of SBC.

"The merger will enable the new SBC to accelerate and expand telecommunications competition by entering 30 U.S. markets outside its traditional 13-state local region, so that the combined company will serve customers in all the top 50 markets in the nation," Mr. Whitacre said in a statement. "In addition, the new company will build on its growing international presence to serve a worldwide market.