The board of directors of SBC Communications (Quote) agreed to purchase AT&T (Quote) in a $16 billion transaction that creates a global communications powerhouse providing residential voice, data and video along with advanced networking services to businesses.
The mostly stock transaction, which was announced early Monday, marks the end of AT&T's storied history as an independent company that single-handedly brought phone service to the masses after the invention of the telephone 130 years ago.
The merger creates the nation's largest telecommunications provider with AT&T's national and global IP-based networks and SBC's local exchange, broadband and wireless assets. The combined company will have over $70 billion in sales and over 200,000 employees.
It also creates new competitive pressures for baby bell Verizon (Quote), which previously held the helm as the nation's largest telecommunications provider prior to the SBC/AT&T merger news.
San Antonio-based SBC offers traditional voice and digital subscriber line service to over 50 million customer lines in 13 states, mostly in the Midwest and West. It's also deploying fiber-optic cable that will bring those services plus video content to residential customers.
SBC counts 5.1 million DSL Internet lines and a local broadband network covering 77 percent of its local customer locations. Along with BellSouth, it also co-owns Cingular, the nation's largest wireless carrier with about 70 million customers.
Although AT&T has been sliding in recent years because of an erosion of traditional long-distance customers, it still serves about 30 million customers and has spent the past few years investing and building out an advanced global communications network for major businesses.
The company has about three million business contracts, including with virtually every member of the Fortune 1000, which will help SBC gain entry to a lucrative market.
Bedminster, New Jersey-based AT&T's global network spans more than 50 countries and connects virtually every country and territory around the world. In addition, it manages 26 advanced Internet Data Centers around the world, 13 in the United States. AT&T said its next-generation IP and e-services revenues grew 11 percent in 2004.
The transaction, which is expected to close in the first half of 2006, also includes AT&T's communications research arm, AT&T Labs, which has more than 5,600 patents, issued or pending, worldwide.
AT&T was originally known as the American Telephone and Telegraph Corporation and counts Alexander Graham Bell, the inventor of the telephone, as its founder. For more than 70 years, it was a regulated monopoly. But in 1984, AT&T, the parent company of the Bell System, was broken up into eight Regional Bell Operating Companies (RBOCs) under an agreement with the U.S. Department of Justice.
A news teleconference is planned later Monday morning in order to discuss the merger and the further plans by the companies.
In a statement announcing the deal, Edward Whitacre Jr., SBC chairman and chief executive officer, said the agreement is a huge step forward in its efforts to build a company that will lead an American communications revolution in the 21st century.
"The communications industry is undergoing a profound transformation as it transitions to unified, IP-based networks capable of delivering a host of integrated services," Whitacre said. "To manage this evolution, customers need a partner with the resources to provide new service platforms and product sets, while maintaining world-class reliability and security. This merger creates that company."
David Dorman, AT&T's chairman and chief executive officer, said the combined companies will be a stronger U.S.-based global competitor capable of delivering the advanced network technologies necessary to offer integrated, high-quality and competitively priced communications services to meet the evolving needs of customers worldwide.
The companies said Whitacre is slated to serve as chairman, CEO and a member of the board of directors of the new company. Dorman is expected to serve as president and a member of the board of directors. As for the new company name, Whitacre said the company values the "heritage and strength of the AT&T brand, which is one of the most widely recognized and respected names throughout the world, and it will certainly be a part of the new company's future."
The companies said under terms of the agreement, approved by the boards of directors of both companies, shareholders of AT&T will receive total consideration currently valued at $19.71 per share, or approximately $16 billion.
AT&T shareholders are slated to receive 0.77942 shares of SBC common stock for each common share of AT&T. Based on SBC's closing stock price on Jan. 28, 2005, this exchange ratio equals $18.41 per share.
In addition, at the time of closing, AT&T will pay its shareholders a special dividend of $1.30 per share. The stock consideration in the transaction is expected to be tax-free to AT&T shareholders.
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