Nears $65 Billion Deal To Buy BellSouth
By Dionne Searcey, Amy Schatz, Almar Latour and Dennis
The Wall Street Journal
Sunday, March 5, 2006
AT&T Inc. is nearing the acquisition of BellSouth Corp. for
roughly $65 billion, people familiar with the situation said
Saturday evening. A deal could be announced as early as
Monday, these people said.
Final terms of the deal could not be learned Saturday
evening, but these people said AT&T Inc. would pay a premium
for BellSouth shares of at least 15%, valuing the company at
$36 per share at least, up from its trading price Friday of
$31.46. That would push the total equity value of the deal
to at least $65 billion, plus the assumption of an
additional $17 billion of BellSouth debt.
Spokespeople for BellSouth and AT&T declined to comment.
An AT&T-BellSouth deal would effectively cleave the nation's
telecom services in two, each vertically integrated with a
local phone operation, business services, and wireless
unit. And it would effectively validate the vision of
competition laid out by the government -- one in which
traditional telecom firms compete directly against cable
operators rather than against each other. The move would
give AT&T Inc. sole control over Cingular, the nation's
largest wireless operator.
A combination between AT&T and BellSouth could have combined
market capitalization of nearly $160 billion, making AT&T
far larger than rival Verizon. The deal would nonetheless
set a showdown between AT&T and Verizon, as the two fight to
control wireless, the growth portion of the telecom
It was the steep growth of Cingular -- joint owned by
BellSouth and the former SBC -- that helped push the two
firms together, say telecom bankers familiar with the
space. As the importance of the wireless business grew,
they say, it became inevitable that SBC (which adopted the
AT&T name just months ago) would consolidate its position in
Put together, the SBC territory would extend from California
to Florida, north to Illinois and south to Texas. Combining
the two companies' current market capitalizations, AT&T
would have a market value approaching $150 billion, over 50%
greater than Verizon.
AT&T Chairman and Chief Executive Edward Whitacre has made a
name for himself in the telecommunications industry as a
Mr. Whitacre is able to boast of a string of acquisitions
including Pacific Telesis Corp., Ameritech Corp. and
Southern New England Telecommunications Corp. But as he
nears retirement, the market had been anticipating one last
hurrah from him; a BellSouth acquisition by AT&T has long
been the subject of speculation from analysts, investors and
the two companies' rivals.
Still, the speedy move to acquire BellSouth came as a
surprise so soon after Mr. Whitacre's takeover of AT&T Corp.
last fall. His company is just starting to digest the $16
billion acquisition. The former SBC Communications Inc.
took over AT&T Corp. and adopted the AT&T moniker. The new
company dominates nearly every aspect of the industry, from
high-speed Internet connections to long-distance phone
service, as well as wireless. And Mr. Whitacre now has
access to the old AT&T's enterprise business and world-wide
Such a deal would likely prompt howls of protest in some
quarters as it comes on the heels not only of the AT&T-SBC
deal but also after Verizon Communications Inc.'s
acquisition of MCI. Those deals were approved with only a
few minor conditions despite concerns they would lead to
higher prices for business customers.
The wave of mergers has dramatically reshaped the telecom
industry, and a purchase of BellSouth would further cement
the recreation of the old Ma Bell, which the government
pushed to break up in 1984.
The management of AT&T, which has apparently briefed key
senior government officials late last week, appears to be
betting that the Bush administration and a Bell-friendly
Federal Communications Commission won't raise too many
obstacles for such a deal, arguing that the companies serve
different geographic regions and do not currently compete
with one another in a significant way.
Although AT&T and Verizon's last mergers passed both FCC and
Justice Department review with little major problems, the
latest proposed merger may face more hurdles. Recent
comments by AT&T and BellSouth executives about their
intentions to explore new revenue streams from their
high-speed Internet services by introducing two-tier or
"premium" service for Internet content providers. Concerns
about those plans and the concept of "net neutrality," or
ensuring that consumers have open access to all Internet
sites and services and businesses do not find their content
slowed, has become a major problems for the Bells in
Meanwhile, the FCC that will be reviewing the AT&T/BellSouth
deal will likely be a much different body soon with the
addition of Robert McDowell, a veteran telecom lawyer who
currently serves as assistant general counsel at Comptel,
which represents smaller telephone companies and was a vocal
opponent of the AT&T and Verizon mergers last year.
Mr. McDowell is scheduled to appear before a Senate
committee on Thursday for his confirmation and is likely to
be asked about the merger. Although Mr. McDowell is a
Republican, his nomination to the FCC was met with
noticeable unease by the Bell companies, which have
privately expressed some concern his experience working with
smaller competitors may make him less than sympathetic to
Write to Dionne Searcey
firstname.lastname@example.org, Amy Schatz at
Amy.Schatz@wsj.com, Almar Latour at
email@example.com and Dennis Berman at
How They Stack Up
(Note: A portion only.)
An AT&T-BellSouth deal would create a telecom
giant with a local phone operation, business services and
wireless unit, and could have a combined market
capitalization of nearly $160 billion. Here's how the
telecom companies compare.
Founded: In 1876, after Alexander Graham Bell's
invention of the telephone and the founding of the company
that became AT&T.
San Antonio, Texas
The move would give AT&T sole control over Cingular, in
which it currently owns 60%.
on the NYSE under the symbol "T".
$1.66 billion in the fourth quarter of 2005.
$12.97 billion in the fourth quarter of 2005, excluding
Cingular's sales and including the full quarter for the
former SBC and six weeks of results for the former AT&T.
The Bell System was divested in 1984 by an agreement between
the former AT&T and the U.S. Department of Justice. AT&T
agreed to divest itself of its local telephone operations
but retain its long distance, R&D and manufacturing arms.
Out of the divestiture, SBC Communications Inc. (formerly
known as Southwestern Bell Corp.) was born. The former SBC
Communications Inc. took over AT&T Corp. on Nov. 18, and
adopted the AT&T moniker.
F. Duane Ackerman
Joint control and 40% ownership of wireless voice and data
provider Cingular Wireless. Subsidiaries include wireline
communications provider BellSouth Telecommunications Inc.and
long-distance provider BellSouth Long Distance Inc.
on the NYSE under the symbol "BLS".
$618 million in the fourth quarter of 2005.
$5.24 billion in the fourth quarter of 2005, excluding
Sources: the companies, WSJ.com research
Two Decades of Telecom
AT&T owns 22 local Bell telephone companies -- a
near-monopoly on local, interstate and long-distance phone
service, though long-distance competitors including MCI, GTE
and a precursor to Sprint existed. AT&T opens the first
commercial cellphone system in Chicago in 1983.
Following an antitrust suit, the Justice
Department divests AT&T of the 22 companies, and transfers
ownership to seven Regional Bell Operating Companies. These
companies are banned from selling long-distance service.
Sprint begins transatlantic long-distance
service, making some competition for AT&T. That same year,
WorldCom goes public through a merger with Advantage Cos.
AT&T enters the nascent wireless game with the
acquisition of McCaw Cellular, which it renames AT&T
The Telecommunications Act of 1996 allows the
Bells to compete in long-distance. Years of mergers among
the Bells follows.
The merger of WorldCom with MCI wins approval.
GTE Wireless, Bell Atlanta Mobile and Vodafone
AirTouch combine to form Verizon Wireless. Also that year,
SBC and BellSouth merge wireless operations to form
Verizon Communications is formed by a merger
between Bell Atlantic and GTE. Meanwhile, a proposed merger
between MCI WorldCom and Sprint is barred on antitrust
It's a big year for telecom news: AT&T Wireless
is spun off into separate company; VoiceStream buys
Deutsche Telecom, which it renames T-Mobile in 2002; and
WorldCom files for Chapter 11 protection.
Struggling AT&T announces plans to stop marketing
consumer long-distance service. Meanwhile, WorldCom, now
MCI, emerges from Chapter 11. Also, merger mania kicks off
as Cingular acquires AT&T Wireless, and Sprint agrees to
The string of telecom mergers continues: SBC
agrees to buy AT&T Corp. and adopts the AT&T moniker, and
Verizon Communications agrees to acquire MCI.
AT&T Inc. nears a deal to acquire BellSouth Corp.
for roughly $65 billion, in an agreement that would give
AT&T sole control over Cingular, the nation's largest