SBC in talks to buy AT&T?

[notiCIas]

SBC in talks to buy AT&T? 


Deal to create No. 1 telecom could be worth $15B, people familiar say; talks 'sensitive.'

January 27, 2005: 11:11 AM EST

WASHINGTON (Reuters) - SBC Communications Inc. is in talks to acquire AT&T Corp. for more than $15 billion to bolster its business among large corporations, people familiar with the talks said Thursday.

SBC, the nation's No. 2 telecommunications company behind Verizon, is interested in AT&T's lucrative corporate clients and international network, these people said.

Spokesmen for SBC and AT&T declined to comment.

AT&T, the biggest long-distance carrier, had a stock market value of about $14.7 billion based on Wednesday's closing stock price. The company has been suffering from growing competition from SBC, Verizon and other dominant local carriers.

AT&T (up $1.16 to $19.61, Research) shares jumped 5.6 percent in morning trading on the New York Stock Exchange, while SBC (down $0.57 to $24.01, Research) shares sank 2.3 percent. Shares of rival phone companies Verizon (Research) and Sprint (Research) also fell.

The merger talks, first reported in The New York Times and The Wall Street Journal, were described as sensitive with a potential for collapse.

One source said the SBC board was to hold a regularly scheduled meeting in the next few days and would probably discuss the matter.

For SBC Chairman Ed Whitacre, a voracious acquirer during his tenure at the company, buying AT&T would complete a transformation of SBC from a regional telephone company into an international force in wireless and wireline communications.

A combination of AT&T and SBC would create the nation's biggest telephone company and also reunite a "Baby Bell" with its former parent -- a union former Federal Communications Commission chief Reed Hundt deemed "unthinkable" in 1997.

Consumer advocates echoed those sentiments on Thursday.

"For SBC to gobble up its original parent company would finally put much of local and long-distance competition in the grave," said Gene Kimmelman, senior director of public policy for Consumers Union.

AT&T held unsuccessful merger talks with BellSouth Corp. (up $0.01 to $26.58, Research) in 2003, but the Baby Bell walked away after seeing AT&T's revenue and growth potential shrinking, almost daily. Finding the right value and price tag for AT&T was like "trying to weigh a falling rock," one analyst said at the time.

Heated competition
The merger talks with SBC come after a rough year for AT&T, which included 14,000 job cuts, a $11.4 billion write-down in its assets, and an 11.6 percent drop in full-year revenue. AT&T Chairman David Dorman told analysts last week to expect a 15 to 18 percent drop in revenue and more job cuts this year.

AT&T and other long-distance companies such as MCI Inc. have been battered as the Baby Bells have begun competing head-to-head in their markets. Cell phone service is another big competitor.

After winning approval from federal regulators to enter the long-distance market, SBC began moving aggressively into selling services to large businesses about a year ago, successfully targeting clients in the 13 states where SBC operates.

Despite AT&T's troubles. the company still has a firm grip on the market for telecommunications services to large corporations. Such customers rarely switch providers, and the Bells would have to spend billions to match the international networks that AT&T has built over decades.

AT&T CFO Tom Horton told Reuters in an interview last week that the U.S. long-distance telephone market was ripe for consolidation, with too many small companies pursuing too little revenue. He said consolidation was inevitable and could end a spiral of ever-lower prices for corporate voice and data services.

Banc of America analyst David Barden said in a research note that AT&T would likely be amenable to a sale, but that investors may question why SBC would try to move now instead of waiting for competition to whittle AT&T further.

He said SBC might believe the gap in market valuation between itself and AT&T "is as wide as it is likely to get in light of rising local competition and the perception that (long distance) competition is moderating."