[Boards Of Bell Atlantic And GTE Approve $55 Billion Stock Swap]
(GTE owns 24 fibers along 13K miles of the QWST network. also, guess this means BA won't be partnering with QWST on long distance a la USW... -- mark)
NEW YORK -- The boards of Bell Atlantic Corp. and GTE Corp. have approved a $55 billion stock swap, bringing together GTE's long-distance, wireless and Internet offerings with Bell Atlantic's local and wireless phone service.
In order to do a "no premium" merger of equals, GTE appears to have agreed to a price that was slightly below Friday's closing stock price of $57.9375 a share, though the exact per-share offering couldn't be learned. Yesterday, after The Wall Street Journal reported that the price may be below the current stock price, shares of GTE slid 4% to $55.75, down $2.1875, while Bell Atlantic shares fell to $45, down 18.75 cents.
Some bankers not involved were surprised by the valuation, given that GTE has a higher revenue growth rate and a higher price/earnings ratio, and will be merging into a company with a lower revenue growth rate. But in merger negotiations, everything from strategic assets to the role played by chief executives goes into determining the valuation of a merger.
Under the terms of the deal, GTE will be merged into Bell Atlantic in exchange for shares in the Bell company.
The partners hope to create a telecommunications collossus for the 21st century. But it could end up tripping on a regulatory hurdle from 1982: A provision of the AT&T Corp. breakup restricts its Baby Bell offspring from offering long-distance service.
The merger would allow the combined companies to offer a "bundle" of telecom services, long a holy grail of the telecommunications industry. But the Bell Atlantic-GTE alliance could raise the hackles of regulators in Washington and in state capitals. Such a merger could prompt calls for the new giant to divest assets, such as some of its wireless or long-distance operations.
Bell Atlantic has yet to pass a test mandated by the 1996 Telecommunications Act, which requires the Baby Bells to open up their own regions to local-service competition before they can offer long-distance service inside their territory. While technically the Bell-GTE combo will offer long-distance service in GTE territories outside Bell Atlantic's region, the size and nationwide scope of the alliance could ring alarm bells among regulators.
Bell Atlantic and GTE also provide overlapping wireless service in several states, and Bell Atlantic is part of the PrimeCo Personal Communications L.P. wireless alliance, which is building a wireless service in other areas in which GTE offers cellular service.
One person familiar with the talks said yesterday that Bell Atlantic would be willing to break up the PrimeCo alliance to ensure a GTE deal goes through. Under this proposal, Bell Atlantic would take PrimeCo assets that don't overlap with GTE -- a "likely scenario," this person said. The other PrimeCo partner, AirTouch Communications Inc., would receive the remaining assets.
Scott Cleland, an analyst with the Legg Mason Precursor Group in Washington, D.C., said regulators may find the Bell Atlantic-GTE pairing to be "one of the messier merger reviews ever." He added that "regulators are not going to like this. There are wireless, Internet and long-distance overlap issues to consider." In the end, however, Mr. Cleland said he thinks government regulators are likely to approve the union, albeit with some conditions.
Already, consumer advocates are crying foul, claiming that the Telecommunications Act, passed to promote competition in the industry, is inadvertently thwarting it as megamergers abound.
"Antitrust officials and regulators are choking over the amount of consolidation that is occuring and I expect them to scrutinize (the Bell Atlantic-GTE pact) very carefully," said Gene Kimmelman, co-director of the Washington office of Consumers Union. Having given the nod to other big mergers, regulators "may be one merger too late in stopping the wave," he said, adding that "these consolidations are likely to reinforce monopolies rather than open the door to more competition."
But as with all telecom mergers, the competitive or anticompetitive impact of any given combination results in a rhetorical jihad, and some analysts yesterday said a Bell Atlantic-GTE merger could boost competition.
"We think this is a game where scale is a competitive advantage," said Simon Flattery, a telecom analyst at J.P. Morgan & Co. "On a purely antitrust view, it doesn't substantially change the competitive balance in the market, though there are likely to be some tough negotiations in Washington."
Reed Hundt, a former chairman of the Federal Communications Commission and a principal at Charles Ross Partners, a consulting firm in Bethesda, Md., said the move would mean a triumvirate of telecom giants is likely to emerge, resulting in more competition. SBC Communications Corp.'s pending merger with Ameritech Corp., AT&T's plans to acquire Tele-Communications Inc. and now Bell Atlantic-GTE mean there are three entities large enough to enter local markets and compete head-on, he said.
"They're beefing up like sumo wrestlers to go after each other big time," Mr. Hundt said. The question isn't so much whether regulators will nix any Bell Atlantic-GTE pact, but whether rivals such as SBC will be forced to play by the same rules to which Bell Atlantic must currently adhere, he said.
Opening up local competition, as required by the Telecom Act, may be easy for Bell Atlantic, which has been wrestling for years with regulators to be able to offer long-distance service. But GTE is another matter. The Stamford, Conn., company has aggressively protected its disparate territories, targeting rivals with lawsuits alleging anticompetitive practices. For example, GTE led the charge to block the FCC's so-called interconnection order, which, among other things, required local carriers to lease parts of their network at a deep discount to competitors. Now GTE could be forced to divest some of its own operations, such as long-distance or wireless service in Bell Atlantic's Maine-to-Virginia territory.
Some observers said, however, that by the time a Bell Atlantic-GTE merger is consummated -- yesterday, sources close to the talks said the merger could take 18 months or more to close -- the New York-based Baby Bell will have cleared any regulatory hurdles to offering long-distance service itself. "My prediction is that Bell Atlantic will be in the long-distance market within 12 months," said one industry observer.
GTE owns Internet "backbone" operator BBN Corp., which controls major data arteries across the country. Traditionally, regulators considered such operations to be similar to long-distance phone service, barring the Bells from owning them. The FCC, however, has signaled that it might allow the Bells to enter the data market, so long as they set up a separate subsidiary to operate Internet services. Still, the companies will have to win such approval. On Capitol Hill, lawmakers were quiet about the merger as most lacked a full picture of the developing deal. Louisiana Republican, W.J. "Billy" Tauzin, who chairs the House Commerce subcommittee on telecommunications, said the proposed merger wouldn't be bad for consumers as long as "it provides them with more choices in the marketplace." But Rep. Tauzin also chided the FCC for its strict interpretation of the 1996 telecommunications-reform law. "This only points out what I've been saying all along: If the FCC won't allow the regional Bell companies into the long-distance telephone market, they are going to merge their way into it." |
