BellSouth Drops Bid for Lin, Clearing the Way for McCaw

BellSouth Corp. on Monday agreed to terminate the proposed merger of its cellular telephone interests with those of Lin Broadcasting Corp., clearing the way for McCaw Cellular Communications Inc. to buy a controlling interest in Lin for $3.38 billion.

Lin last week asked BellSouth to terminate its September agreement for merging the cellular telephone operations in a non-cash deal. Lin last week recommended its shareholders approve McCaw’s latest offer.

BellSouth said it was not prepared to wage a bidding war.

“Our merger would have created the premier cellular company in the world, but such decisions ultimately must reflect economic and strategic realities,” said BellSouth Enterprises President William O. McCoy.

New York-based Lin was expected to accept a termination settlement that would pay BellSouth $66.5 million. Lin spokesman Michael Plouf said an agreement then would be signed to proceed with the McCaw deal.

Opposition Seen

McCaw Chairman Craig O. McCaw said BellSouth’s announcement “clears the way for us to complete our acquisition.”

Herschel Schosteck, whose Silver Spring, Md., company follows the cellular telephone industry, said it would have been unwise for BellSouth to compete with McCaw for Lin.

BellSouth’s generally conservative shareholders probably would be averse to a prolonged takeover battle, Schosteck said. “A fight could have diluted earnings for years,” he said.

Furthermore, because it also provides regular land line telephone service, BellSouth also was subject to certain regulatory considerations that would not apply to McCaw, Schosteck said.

“BellSouth’s fiduciary responsibilities precluded them from following this through to the end,” he said.

Lin fell $2 to $122.25 a share Monday. BellSouth rose $1 to $54.50 a share, and McCaw declined 75 cents to $38.75 a share.

Kirkland, Wash.-based McCaw, which has sought Lin for six months, made a revised offer last week to buy a 50.1% controlling interest in Lin for $154.11 a share, or a total of $3.38 billion.

The McCaw-Lin deal calls for McCaw to buy 21.9 million shares of Lin. McCaw, which already owns 5.1 million Lin shares, would end up with just over 50% of Lin’s 53.9 million common shares.

Talks Broke Down

The $66.5-million termination fee for BellSouth was part of the previous Lin-BellSouth agreement, in which the two firms would have created a cellular telephone company with 55 million potential customers and dominance in some of the nation’s top markets.

BellSouth would have gotten 50% of the stock of the combined cellular company. Before the completion of the merger, Lin would have spun off its television broadcasting subsidiaries to stockholders and paid each shareholder a $20-a-share special dividend.

In its initial offer made June 6, McCaw proposed a buyout of all of Lin’s stock at $120 a share, or a total of nearly $6.5 billion.

Lin and McCaw tried to negotiate an agreement, but after their talks broke down Lin agreed to the BellSouth deal.

Lin’s business includes cellular telephone, broadcasting and publishing. McCaw is the nation’s largest cellular phone company.

BellSouth’s offer to terminate the previous agreement also includes a provision for McCaw to contribute $26.5 million to Los Angeles-based RCC’s Inc., of which BellSouth owns 85% and McCaw 15%. The California company owns an equity interest in Los Angeles Cellular Telephone Co.

In a related development Monday, Standard & Poor’s announced it had removed BellSouth Capital Funding Corp. and BellSouth Capital Funding-Australia Ltd., subsidiaries of the Atlanta company, from its “CreditWatch”--where they had been placed Oct. 30.