GTE to Acquire Contel, Forming a Phone Giant : Telecommunications: The stock swap deal is worth $6.3 billion. The result will be America’s largest local phone company.
GTE Corp. and Contel Corp., two of the nation’s largest telephone carriers, said Thursday they tentatively agreed to merge and create a global telecommunications giant with a presence in virtually every aspect of the burgeoning industry.
The deal calls for Stamford, Conn.-based GTE, whose far-flung U.S. operations include some local telephone service in Southern California, to acquire Atlanta-based Contel through a stock swap valued at about $6.3 billion. The proposed acquisition, one of the largest ever in the industry, extends a recent spate of telecommunications takeovers that were previously confined mainly to long-distance carriers.
If approved by stockholders as well as federal and numerous state regulators, the new company would become the largest U.S.-based provider of local telephone service--with more than 17.7 million customers in 40 states and throughout the world--and the nation’s second-largest cellular carrier.
The combined company, to be known as GTE and operated by its current managers, also would have significant satellite, foreign, computer and government contracting operations, in addition to a strong presence in the emerging market for fiber-optic telecommunications service.
It is a “perfect combination of two great companies,” GTE Chairman James L. (Rocky) Johnson said of the deal that insiders say had been brewing for weeks. “This alliance will both position the company strategically and enable us to exploit more fully the many opportunities for growth.”
“This is a play for the future,” said Jack Grubman, a telecommunications analyst with Paine Webber in New York. “Five years from now telephone lines will carry far more information than they do now and telephone companies will be far different. GTE is buying technology, not a utility.”
GTE will issue 1.27 shares of its common stock in a tax-free exchange for each Contel common share.
Contel’s stock shot up on the news, gaining $7.125 per share Thursday to close at $35.125 on the New York Stock Exchange. However, GTE’s stock slipped $1.25 to close at $29.75, showing some concerns about the sizable merger price.
Although the deal would put the new GTE ahead of its regional Baby Bell competitors, analysts speculated that the merger could provide additional ammunition to ongoing efforts by the seven Baby Bells to loosen federal regulatory and judicial constraints on their operations.
“This puts a whole new light on things, and it could make it easier for the regional Bells to win approval to do friendly mergers with independent communications companies,” said Kenneth Leon, a telecommunications analyst at Bear, Stearns & Co. in New York.
The new company would knock Bell Atlantic out as the country’s largest local service company. Further, the new company would surpass Pacific Telesis as the nation’s second-largest cellular telephone operator, with franchises to serve areas with a potential of 50 million customers. Only McCaw Cellular, with 62 million potential customers, has a larger cellular business.
In recent months, GTE has been conducting an ambitious experiment in fiber-optic telecommunications service in Cerritos. It has wired portions of the city using combinations of fiber-optic and coaxial cable and digital and analog switches. The project is designed to prepare for the day, long expected by GTE executives, when telephone companies are allowed to compete with cable TV franchisers in piping video into the home.
THE BIG ONES The top 10 local telephone carriers by number of phone lines as of Dec. 31, 1989 (U.S. operations only).
Number of phone lines Revenue* Company (millions) (billions) Bell Atlantic 17.0 $10.2 Bell South 16.7 12.0 Ameritech 15.9 9.3 Nynex 14.9 11.1 Pacific Telesis 14.2 8.0 US West 12.3 8.1 GTE Corp. 12.3 9.5 Southwestern Bell 11.4 7.4 United Telecom. 3.8 2.3 Contel 2.6 2.1
*Phone revenue only
Source: U.S. Telephone Assn.
Los Angeles Times
