- The Washington Times - Monday, March 6, 2006

ATLANTA — AT&T; Inc. said yesterday it will acquire smaller rival BellSouth Corp. for $67 billion in a bid that would give AT&T; total control of their growing joint venture, Cingular Wireless LLC.

The deal would substantially expand the reach of AT&T;, already the country’s largest telecommunications company by the number of customers served.

After spending millions of dollars to rebrand AT&T; Wireless Services Inc. stores as Cingular stores and hundreds of millions of dollars more on marketing the new Cingular after its $41 billion acquisition of AT&T; Wireless in October 2004, Cingular will now become AT&T; if the merger with BellSouth is completed.

The BellSouth name also would be absorbed in the deal.

“It’s going to be confusing,” said industry analyst Jeff Kagan. “This is the reinvention of the telecommunications industry.”

Cingular has grown strongly since it was formed in 2001 by the merger of a number of regional wireless carriers, and there has been speculation that AT&T; wanted to assume full control of this growth business, in part to be able to market it under the AT&T; name.

BellSouth’s price for its Cingular stake may have been an outright sale of the whole company.

AT&T; will pay 1.325 of its own shares for each BellSouth share. Based on Friday’s closing price of $27.99 for AT&T; shares, that works out to be $37.09 for each BellSouth share, an 18 percent premium from Friday’s closing price of $31.46 for the Atlanta company.

“The deal makes sense,” said Steven Neimeth, who manages $900 million at AIG SunAmerica Asset Management in Jersey City, N.J. “By purchasing BellSouth and controlling all of Cingular, it may provide [AT&T;] the opportunity to improve margins.”

AT&T; was formed by San Antonio-based SBC Communications Inc.’s acquisition of AT&T; Corp. in November. The deal added a substantial national reach to the former Southwestern Bell’s local business, which is concentrated in 13 states, including Texas, California and several states in the Midwest.

BellSouth is the dominant local telephone provider in nine Southeastern states.

The merged company would have 70 million local-line phone customers and nearly 10 million broadband subscribers. The deal appears to be the largest yet among U.S. telecom players.

In 1999, MCI WorldCom Inc. agreed to buy Sprint Corp. for an even larger sum, $115 billion, but that deal was blocked by federal regulators.

The shift in the U.S. telecom landscape — moving from four to three regional Bell operators — is sure to garner close review from Washington.

“Twenty years after the government broke up Ma Bell, this deal represents a mother and child reunion,” said Rep. Edward J. Markey, ranking Democrat on the House subcommittee on telecommunications and the Internet.

“Our nation’s telecommunications markets must be vigorously competitive and open to innovation in order to promote job creation and economic growth,” said Mr. Markey, of Massachusetts. “This merger proposal is one that unquestionably merits the utmost scrutiny by government antitrust officials.”

The combined company will be based in San Antonio, and Ed Whitacre, AT&T;’s chairman and chief executive, will keep those positions. His counterpart at BellSouth, Duane Ackerman, 63, will run BellSouth’s operations in a “transition period” after the merger.

Cingular’s headquarters will stay in Atlanta, as will the headquarters for the former BellSouth region.

The wireless operations will be the growth engine of the new company and will account for one-third of the combined revenue.

AT&T; expects the acquisition to save it $2 billion annually, starting the year after the deal closes. About half of the savings would come from reduced advertising expenses and from combining their work forces.

The rest of the savings would come from combining the backbone network and information-technology operations of the two companies.

Together, the companies will employ more than 316,000 people, though that head count may fall as the company eliminates redundant operations.

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