>The one I didn't expect. I own some, but not quite excited about this possible deal.
UPDATE 4-SBC in talks to buy AT&T -- sources
Thu Jan 27, 2005 12:43 PM ET
(Adds details, updates stock prices)
By Justin Hyde
WASHINGTON, Jan 27 (Reuters) - SBC Communications Inc. (SBC.N: Quote, Profile, Research) is in talks to acquire AT&T Corp. (T.N: Quote, Profile, Research) for more than $15 billion to bolster its business among large corporations, sources familiar with the talks said on Thursday.
SBC, the No. 2 U.S. telecommunications company, is interested in AT&T's corporate clients and international telephone and data network, the sources said.
Spokesmen for SBC and AT&T declined to comment.
Combined, the companies would be about the same size as Verizon Communications Inc. (VZ.N: Quote, Profile, Research) , the nation's biggest telecommunications company. A merger would likely face antitrust hurdles.
"Regulatory issues are not insurmountable, but we believe they would create a long and controversial approval process. We believe the time commitment would reduce the attractiveness of any effort to get the deal done," said Lehman Brothers analyst Blake Bath.
Shares of AT&T, the largest U.S. long-distance company, surged 6.5 percent. SBC shares fell 2 percent.
For SBC Chairman Ed Whitacre, a voracious acquirer during his 15-year tenure at the helm of company, buying AT&T would complete a transformation of SBC from a regional local telephone company into an international force in wireless and wireline communications.
A combination between AT&T and SBC also would 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, which has a market value of $15.7 billion, has been slammed by increasing competition from SBC and other dominant local carriers.
The company held unsuccessful merger talks with BellSouth Corp. (BLS.N: Quote, Profile, Research) in 2003, but the Baby Bell walked away after seeing AT&T's revenue and growth potential shrink 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.
ERODING REVENUE
The merger talks with SBC come after a rough year for AT&T, which saw 14,000 job cuts, a $11.4 billion write-down in its assets, and a 11.6 percent drop in full-year revenue. AT&T expects more jobs cuts and a 15 percent to 18 percent decline in revenue this year.
AT&T and other long-distance companies such as MCI Inc. (MCIP.O: Quote, Profile, Research) have been battered as the Baby Bells have begun competing head-to-head in their markets.
After winning approval from federal regulators to enter the long-distance market, SBC aggressively hawked services to large businesses about a year ago and gained traction among regional clients.
SBC, however, lacks the global reach to serve the top-tier multinational corporations. AT&T dominates that market, which is tough to crack since those customers rarely switch providers due to the complexity of their networks. The Bells would have to spend billions to match the international networks that AT&T has built over decades.
AT&T Chief Financial Officer Tom Horton said last week that the U.S. long-distance telephone market was ripe for consolidation, with too many small companies pursuing too little revenue. Consolidation could end a spiral of ever-lower prices for corporate voice and data services, he said.
Verizon said on Thursday it would stick to its strategy of building its corporate business on its own. It has focused on smaller, regional customers and aimed to become a secondary telephone or data provider for the biggest companies.
Banc of America analyst David Barden said investors may question why SBC would try to pounce now instead of waiting for competition to whittle AT&T further.
SBC might be smarter to concentrate on its Cingular Wireless joint venture, which just completed a $41 billion acquisition of AT&T Wireless, other analysts said. Buying AT&T now would merely slow SBC's overall growth, give it a stagnant long-distance business and present additional capital spending needs, they said.
"SBC needs AT&T like a hole in the head. We believe they would be better off owning all of Cingular," said Greg Gorbatenko, an analyst with Marquis Investment Research.
Cingular, the biggest U.S. mobile provider, is a joint venture of SBC and BellSouth.
AT&T shares were up $1.20 to $19.65 in midday trade on the New York Stock Exchange. SBC was down 50 cents to $24.08.
Investor enthusiasm for a potential takeover of AT&T spilled over to rival long-distance carrier MCI Inc. (MCIP.O: Quote, Profile, Research) , which saw its stock jump 75 cents, or 4 percent, to $19.42. (Additional reporting by Jessica Hall in Philadelphia and Jeremy Pelofsky in Washington)
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