Cingular wins bidding to gain AT&T Wireless

Tuesday, Feb. 17, 2004 | 11:25 a.m.

SUN STAFF AND WIRE REPORTS

Cingular Wireless won the bidding war to acquire AT&T Wireless Services for nearly $41 billion in cash, a deal that would create the nation's largest cell phone company.

The merger between the second and third largest U.S. wireless companies was announced this morning as Britain's Vodafone Group PLC withdrew from the contest after four days of rising bids.

Combined, Cingular and AT&T Wireless will have 46 million subscribers, enough to leapfrog Verizon Wireless' market leading customer base of 37.5 million.

The move also increases the Nevada marketshare of SBC Communications Inc., the dominant local telephone provider outside of Las Vegas. SBC, in a partnership with BellSouth Corp., also owns Cingular.

SBC last month announced plans to offer local residential service in the Las Vegas Valley. Sprint, the dominant phone company in Las Vegas, has touted its ability to bundle services such as wireless service with local wireline service to protect its market share.

Nevada industry experts are mixed on what effect the new wireless merger could play in heating up the local competition.

"It could make a difference," said Don Soderberg, chairman of the state Public Utilities Commission. "With SBC growing and really focusing on the Southern Nevada market, they can be a prime competitor. On the other hand, there is going to be one less wireless competitior."

Nevada Consumer Advocate Tim Hay said the ability to bundle wireless and wireline service, at this point, has probably been overstated.

"There's just not too much relationship between the two," Hay said. "Particularly in the wireless area where there is a good amount of competition, there's not a whole lot of advantage in bundling service. But that could develop over time."

AT&T Wireless chief executive John Zeglis will not remain with the combined company once a deal is approved, he told reporters in a conference call. Cingular CEO Stan Sigman will be chief of the company, Zeglis said.

"I'll hang around anytime Stan wants me to and then I'm onto the next thing," Zeglis said. Pressed on the issue, he said he would not remain with the company after closing, adding "We don't need two new CEOs."

Guzman and Co. analyst Patrick Comack said he didn't think the deal would lead to higher wireless phone prices for consumers. "You still have some very aggressive competitors out there. Customers still have five choices," he said.

Cingular said its winning bid was for $15 per share, an amount that would value AT&T Wireless at $40.7 billion. That includes the 16 percent stake in AT&T Wireless held by NTT DoCoMo of Japan, a BellSouth spokesman said. Cingular will also assume $6 billion of debt owed by AT&T Wireless.

The agreement, subject to the approval of AT&T Wireless shareholders and regulatory authorities, may be the largest all-cash transaction in U.S. history, said David Caouette, spokesman for AT&T Wireless.

In early trading on the New York Stock Exchange, AT&T Wireless shares climbed $1.99, or 16.8 percent, to $13.81. SBC Communications owns 60 percent of Cingular, while BellSouth owns 40 percent. Shares of SBC fell 35 cents to $24.70, while shares of BellSouth fell 90 cents to $28.65 in trading early today.

The combined company will carry the Cingular name and once a deal is approved billing and other operational functions will be merged, though there will be no immediate impact on customers, said Ralph de la Vega, Cingular's chief operating officer.

He said federal regulators may ask the combined company to divest certain assets where there is overlap.

"We think that there should not be any divestitures required," de la Vega said. "The greatest competition is perhaps right here in the U.S. so the consolidation of two of the players should not cause any problems for competitors. Even in areas of overlap, there is sufficient competition not to warrant it."

As far as possible job cuts or management changes, de la Vega indicated there could be some, though he would not elaborate. The combined company would have about 70,000 employees.

"We will look at the combined operations and look for where there is overlap and see where we can be more efficient," he said.

Caouette of AT&T Wireless said some employees would be affected because large-scale mergers create "duplicate functions" that can be eliminated. AT&T Wireless had already planned to cut 1,900 jobs from of a work force of 31,000 by the end of 2005.

The analyst Comack said he expects there to be significant layoffs because there is so much overlap between the companies.

"They don't need the AT&T Wireless employees at all. They might save some salesman, but everything is redundant," Comack said. "Cingular doubled their customer base and doubled their spectrum, but they can run that with the same amount of employees."

In addition to paying AT&T Wireless shareholders a 27 percent premium over the company's closing stock price of $11.82 on Friday, the merger may ease the cutthroat competition in the U.S. cellular market, trimming the number of national players from six to five.

Zeglis, the AT&T Wireless chairman and CEO, said in a statement that the transaction means "a handsome return" for investors, advantages for customers and more opportunities for employees.

The deal brought to an end a heated bidding war between Cingular and Vodafone that saw both companies boosting their offers following a Friday deadline to submit bid set by AT&T Wireless.

Cingular, which had 23.4 million customers late last year, opened its bidding at $13 a share, or $35 billion, two sources told The Associated Press on condition of anonymity. It then raised its offer to $14 a share early Monday; Vodafone matched Cingular's offers in each stage of the process, a source said.

De la Vega said the bidding heated up early today when Cingular raised its bid a final time to more than $40 billion. He said it is not clear if Vodafone dropped out of the race before or after Cingular upped its bid.

A Vodafone deal would have required the British cell phone giant to sell its 45 percent stake in Verizon Wireless.

After announcing it had dropped out, Vodafone said today that it remained "committed to its existing position in the U.S. market with its successful partnership in Verizon Wireless."

AT&T Wireless' share price has risen steadily in recent weeks on news that it was putting itself on the auction block.

The carrier, based in Redmond, Wash., has more than 22 million subscribers, including a sizable base of corporate clients who tend to use more services and spend more money.

However, the company has struggled in recent months.

Late last year, it couldn't add new subscribers because of a glitch in a new software system designed to improve customer service.

AT&T Wireless also has acknowledged that it lost more customers than it gained under new federal rules that took effect in late November allowing cell phone users to change carriers without losing their phone numbers. The company has not released specific figures.