SBC Communications Inc. said yesterday it will buy AT&T Corp. for about $16 billion, aiming to bolster its services for large corporations and end "Ma Bell's" independence.
The combined company would have around $71 billion in revenues, the same as top US telecom Verizon Communications Inc. A merger would likely face antitrust hurdles.
SBC's acquisition of the No. 1 long-distance carrier will include $14.7 billion in SBC stock and a special dividend of roughly $1.04 billion to be paid by AT&T to its shareholders when the deal closes.
SBC will issue 0.78 of its shares for each AT&T share, valuing AT&T at $18.41 a share. AT&T will then pay a special dividend of $1.30 a share. Combined, the deal would value AT&T at $19.71 a share - no premium to its closing stock price on Friday.
The deal, which is expected to close by the first half of 2006, has already drawn criticism from analysts, who slammed $16 billion as too expensive for a company that has shrinking revenues and questionable growth prospects.
"AT&T's business doesn't seem that accretive or value added," said Greg Gorbatenko, an analyst with Marquis Investment Research.
AT&T shares closed on Friday at $19.71, up 11 cents SBC closed down 0.2 per cent at $23.62, valuing the company at $78 billion.
A combination of AT&T and SBC would reunite a "Baby Bell" with its former parent - a union former Federal Communications Commission chief Reed Hundt deemed "unthinkable" in 1997.
For SBC Chairman Ed Whitacre, a voracious purchaser of companies during his 15-year tenure at the helm of Texas company, buying AT&T would complete a transformation of SBC from a regional, local telephone company into an international force.
"With this move, SBC would be elevated above the other Baby Bells with national business services," Mr Kagan said.
It is unclear what will happen to the AT&T name. "We value the heritage and strength of the AT&T brand, which is one of the most widely recognised and respected names throughout the world and it will certainly be a part of the new company's future," Mr Whitacre said in a statement.
Mr Whitacre will be chairman and chief executive officer of the combined company, while AT&T's CEO David Dorman would serve as president. Mr Dorman and two other AT&T executives would serve on the combined company's board of directors, the companies said.
SBC said it expects the acquisition to slow its revenue growth rate in the "near term" after the deal closes. It also expects the transaction will be positive for cashflow in 2007 and positive for earnings per share in 2008.
The companies said they expect the deal will produce a "net present value of more than $15 billion in synergies, net of the cost to achieve them." Nearly half of the savings are expected to come from network operations and information technology, as facilities and operations are consolidated.
AT&T, whose history dates back 130 years to the invention of the telephone, has been slammed by increasing competition from SBC and other dominant local carriers. The company held unsuccessful merger talks with BellSouth Corp. in 2003, but the Baby Bell walked away after seeing AT&T's revenue and growth potential shrink.
The acquisition of AT&T will shift attention to MCI as the next takeover target, analysts said. MCI is the No. 2 long-distance company.
"It would definitely put MCI on the block and it would be acquired quickly by one of the other Bells, Verizon or BellSouth or Qwest," Jeff Kagan, an independent telecommunications analyst, said in an e-mail.
A takeover of the two largest long-distance carriers has been seen by industry executives as inevitable as the Baby Bells try to expand their mix of services. But the timing seems premature, analysts said.
SBC would be smarter to focus on its faster-growing wireless and data services than taking on the challenge of the difficult integration of AT&T, reducing its overall revenue growth and risking exposure to the shrinking corporate long-distance market, Lehman Brothers analyst Blake Bath said in a research report.