Signaling the further consolidation of the U.S. local phone services market and clocking in as the largest deal in the history of telecommunications, regional telephone company SBC Communications, Inc. (SBC) today announced plans to acquire Ameritech Corp. for $62 billion in stock.
The deal, which would eclipse even the pending mega-merger between MCI Communications Corp. and WorldCom,Inc. valued at around $37 billion, would make SBC the biggest local phone services provider in the U.S. Together,SBC and Ameritech will form a company worth $146 billion that will compete against incumbent local telecommunications companies, local exchange carriers, long-distance companies and global service providers, SBC said in a statement.
Under the terms of the deal, which the companies expect to complete by year-end, Ameritech shareholders will receive a fixed exchange ratio of 1.316 SBC shares for each share of Ameritech. At Ameritech's Friday closing price of $42 3/8, this will represent a value of approximately $55.77 for each Ameritech share, SBC said. The combined company will be called SBC and will be approximately 56% owned by SBC's existing shareholders and 44% by Ameritech's existing shareholders, SBC said.
By acquiring Ameritech, SBC would gain access to 30 new local U.S. markets outside its existing 13-state region and will have a potential customer base of around 180 million people, SBC said. Some of its new territories will be Detroit, Chicago and Cleveland. The combined company also will seek to enter international markets - together,SBC and Ameritech already have operations in 19 countries in Europe, Asia, Africa, North America and South America - and will offer a mix of local, long-distance and Internet services, SBC said.
If the deal goes through, it would mean even further consolidation of the RBOCs, which were set up as regional local service providers in 1984 when regulators broke up AT&T. SBC has already had a major part in this consolidation. The San Antonio, Texas, company acquired Pacific Telesis Group,the Bell operator in California and Nevada, for $16.5 billion in April 1997 and plans to complete a $4.4 billion buyout of the Connecticut phone company, Southern New England Telecommunications Group later this year.
The deal will need to pass scrutiny from the Federal Communications Commission (FCC), the Justice Department and state regulators, as well as some European officials. If the Bells get stitched back together into one or two nationwide operators, it could create a similar situation to the one regulators dismantled in the 1980s, where AT&T dominated the entire U.S. market. Once RBOCs are allowed to enter the long-distance market, SBC plans to use its expanded customer contacts at the local level to make a substantial push into that market.
The merger will irk the FCC, but is still likely to be approved, according to Jeffrey Kagan, an Atlanta-based telecommunications industry analyst. If deal is approved, the pace of mergers will intensify, he said.
Since U.S. federal law prohibits ownership of overlapping wireless licenses, the companies will each divest certain cellular properties, SBC explained.
SBC and Ameritech said that the merger would not mean any job cuts. In fact, the number of employees is expected to grow over the next few years as the company moves into long-distance markets and other new services, SBC said.Ameritech will continue to have its headquarters in Chicago and will continue to use its name in each of the states in which it currently operates, SBC added.
If the merger is finalized, Edward Whitacre will remain as chairman and CEO of SBC, while Dick Notebaert will remain as chairman and CEO of Ameritech. How the two chiefs will share the responsibility of ruling the new company was not made clear.
