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. Last Updated: 07/27/2016

Phone Giant AT&T Bids $67Bln for BellSouth

PHILADELPHIA -- AT&T said Sunday that it would buy BellSouth for $67 billion to acquire the rest of Cingular Wireless it does not already own, and expand into the southeastern United States to gain heft to battle growing competition from cable television and Internet companies.

Together, AT&T and BellSouth would have a coast-to-coast long-distance telephone and data network, residential customers in 22 states and business customers comprising more than half the Fortune 1000, analysts said.

BellSouth shareholders will receive 1.325 shares of AT&T common stock for each common share of BellSouth. Based on AT&T's closing stock price on Friday, that equals $37.09 per BellSouth common share, a 17.9 percent premium.

The new AT&T, which was formed in November when SBC Communications completed its acquisition of AT&T, also said it would repurchase at least $10 billion of its common shares over the next 22 months.

The deal's price tag, which values BellSouth at about 6.9 times Wall Street's 2006 cash-flow forecasts, will likely weigh on AT&T's stock price, said Stifel Nicolaus analyst Chris King. "We believe this premium valuation ... is difficult to justify," King said.

The companies have a combined market capitalization of $165 billion, based on Friday's closing stock prices. The next largest telephone company, Verizon, which bought MCI last year, has a market capitalization of $99 billion.

The deal would bring ownership of Cingular Wireless, the No. 1 U.S. wireless telephone company, under one roof, which Wall Street analysts have said would streamline management and allow one parent company to enjoy all of the financial benefits.

AT&T currently owns 60 percent of Cingular, while BellSouth owns the remaining 40 percent. Despite its heft, Cingular has been losing market share of the most lucrative customers to its main rival, Verizon Wireless.

At the completion of the deal, which is expected to close within a year, all the landline and wireless businesses will exist under the sole brand name of AT&T, the companies said.

A purchase of BellSouth would recombine the former "Ma Bell" with four of the seven original Baby Bells regional telephone companies.

Two top consumer groups asked the government to block the deal, saying it could lead to higher prices. AT&T said the deal would result in a "very competitive company," especially in wireless and video services.

AT&T, whose history dates back more than 125 years to the invention of the telephone, was broken up in 1984, with the parent controlling the long-distance assets and its seven offspring controlling regional local services.

"This is essentially re-creating the old AT&T. But ... with so many competing technologies, it's a very, very different world now," said Tim Ghriskey, chief investment officer of Solaris Asset Management in New York.

As traditional landline phone businesses have been hurt by a shift to e-mail and wireless phones, carriers have shifted their focus to faster growing businesses such as wireless and data services.

AT&T and other major telephone companies also have been upgrading their networks to offer subscription-television services to thwart competition from cable television operators, which are offering phone services.

A merged AT&T-BellSouth would be trailed by Verizon. Qwest, the final remaining Baby Bell, covers Minnesota to Washington state.

Any deal would require approval from antitrust authorities as well as the Federal Communications Commission, but analysts said they doubted there would be significant opposition.

"The deal is likely to be approved," said Blair Levin, an analyst at Stifel Nicolaus and a former Federal Communications Commission chief of staff.

He said the government would likely seek similar conditions on this transaction that were placed on the AT&T-SBC deal, which included some price controls, and provided competitors access to some buildings and ensuring customers have unfettered access to the Internet.

Cost savings will come from work force cuts, lower advertising expenses and cheaper operating costs as the companies merge operations.

 In a conference call late Monday, Chief Financial Officer Rick Lindner said AT&T plans to eliminate about 10,000 jobs after completing the purchase of BellSouth. The reductions will come in 2007 and 2009.

With BellSouth and Cingular, San Antonio-based AT&T's workforce will rise to 317,000 from 189,000. Job reductions represent about 50 percent of the planned $18 billion in cost savings AT&T expects to extract from the purchase.