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Last updated: March 5, 2006 8:46 pm

AT&T to buy BellSouth for $67bn

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The US telecoms industry was on Sunday night poised for major upheaval as AT&T announced it would acquire BellSouth for about $67bn.

The long-expected move will see AT&T consolidate its position as the largest US carrier and take full control of Cingular, the two companies’ fast-growing wireless joint venture.

The acquisition marks the latest chapter in the reshaping of the US telecoms industry, where large mergers have been the answer to rapid changes in technology and the threat of competition from cable groups.

Verizon – which will be only half of AT&T’s size in terms of market capitalisation after the transaction – is likely to come under pressure to react with its own big deal.

This could entail Verizon pursuing a takeover of rival Qwest or entering swift discussions with the UK’s Vodafone to take full control of Verizon Wireless, their mobile phone joint venture, observers said. Since last year, Verizon has been busy integrating its acquisition of MCI for nearly $10bn, which gave it access to a vast network of long-distance and business customers.

Edward Whitacre, chief executive of AT&T, has been the industry’s most aggressive player, buying AT&T Wireless in 2004 for $41bn and AT&T itself last year, in a $16bn deal that allowed his company SBC Communications to take the AT&T name.

AT&T is expected to pay $37.09 per share in stock for BellSouth, or an 17.9 per cent premium over the company’s share price of $31.46 on Friday night. AT&T will also agree to take on about $17bn of BellSouth debt.

Although an AT&T takeover of BellSouth has long been expected, many telecoms industry watchers yesterday expressed surprise that an announcement had come so soon after the combination of SBC and AT&T. News of the discussions also immediately triggered speculation that the deal could spark a round of consolidation among the largest telecoms equipment makers, such as Lucent and Nortel.

By combining overhead and marketing costs, as well as AT&T and BellSouth’s local phone networks, which together stretch from California to Florida, the companies are expecting to generate at least $10bn in savings, said a person close to the talks.

A key motivation behind the merger appears to be the fast growth experienced by Cingular Wireless, their 50-50 mobile phone joint venture, which will be rebranded to take the AT&T name when the deal closes.

AT&T will move to gain regulatory approval for the transaction, which reverses the break-up of “Ma Bell” sought by the US government in the 1980s. In recent years, the Federal Communications Commission has encouraged telecoms mergers, recognising that the competitive landscape has changed.

Based in Georgia and run by Duane Ackerman, BellSouth had been absent from the last round of telecoms consolidation. Last year, it generated $3.3bn in net income from $20.5bn in revenue.

AT&T and BellSouth declined to comment.

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