ATLANTA—AT&T Inc. announced Sunday that it will merge with Baby Bell BellSouth Corp. in a $67.1 billion, all-stock transaction that, if approved by regulators, would give Cingular Wireless L.L.C. a single parent company. The transaction also would replace the Cingular brand with the very AT&T brand that Cingular tried to stamp out after acquiring AT&T Wireless Services Inc. in 2004.
The boards of BellSouth and AT&T have already approved the merger, which also must receive a thumbs-up from stockholders and U.S. anti-trust regulators. The merger would put AT&T back on top as the largest telecommunications company in the United States—and, in fact, the world—after it was broken up into eight smaller companies by the federal government in 1984.
AT&T and BellSouth said that one of the benefits the deal would quickly generate would be to “streamline and enhance management and operations at Cingular.” The united company expects to slash as many as 10,000 jobs between 2007 and 2009, according to its presentation to analysts this morning.
A company statement also indicated that the Cingular brand is not long for this world, stating that “currently, the three companies [AT&T, Cingular and BellSouth] support three distinct brands with three separate advertising campaigns. Following the merger, they expect to move to a single brand: AT&T.” The statement went on to add that “while the majority of Cingular’s operations will remain unchanged, simplifying the ownership structure will lead to more efficient marketing and service provisioning, which will come under a single AT&T brand.”
The companies expect to generate more than $2 billion in synergies annually, beginning in the second year after closing, and estimate the net value of merger-related synergies at $18 billion. Most of the savings are expected to come from consolidating network operations and IT; other areas include combining staff functions, reduced branding expenses and reduced costs in “the operations of unregulated and interstate services, and corporate staff.”
Consumer groups are expected to oppose the merger, but Bill Lesieur, director of Technology Business Research, predicted that the transaction would be approved without significant constraints from federal regulators.
“The traditional reasons for the [Federal Communications Commission] to reject this merger scenario have vanished since the telecom industry has become completely disrupted due to next-generation network standards and technologies, which have created brand new value chains with multiple players that will drive consumer choice and new innovative services,” Lesieur said. He added that while the consolidations would save billions when complete, “the internal chaos of the integration will be staggering.”
AT&T’s stock was down slightly in response to the news, while BellSouth’s stock surged 11 percent to just over $35 per share. Meanwhile, Standard & Poor’s downgraded its rating on shares of Nortel Networks Ltd. and Lucent Technologies Inc., citing risks from the proposed AT&T/BellSouth merger. Verizon Communications Inc. responded to the deal by reaffirming its readiness to buy out Vodafone Group plc’s 45-percent stake; Vodafone has been under pressure from stockholders to bolster its flailing stock price by selling some of its operations in Japan and/or the United States, and last week confirmed that it is in talks to sell Vodafone Japan to Internet access provider Softbank.
AT&T and BellSouth each have significant WiMAX plans that are in synch with each other, noted Peter Jarich, principal analyst for wireless infrastructure with research and consulting firm Current Analysis. BellSouth in particular has strong spectrum holdings at 2.3 GHz and has been conducting trials, while AT&T has predicted that WiMAX would become the fourth-generation wireless technology.
“BellSouth’s work with Navini is leading down the WiMAX path anyway,” Jarich said. “If AT&T lends any influence or insight, we’re not likely to see pushback on that front. More likely, Bell South’s insights, relations and spectrum would support AT&T’s plans.”
