AT&T; Near Deal to Buy Third of McCaw Cellular : Telecommunications: Analysts say the plan would allow the long-distance carrier back into local telephone service.
American Telephone & Telegraph is reaching out for another chance to build a national telephone company--this time by investing $3.8 billion in new wireless communications technology.
The nation’s largest long-distance carrier announced Wednesday that it is negotiating to buy one-third of McCaw Cellular Communications, the nation’s biggest cellular phone operator.
AT&T;, which sat on the sidelines while the cellular technology it invented revolutionized mobile communications in the late 1980s, said the investment would give it a stake in the fastest-growing segment of the telephone industry.
McCaw would gain access to AT&T;’s long-distance network--the world’s most extensive--and the right to market its services under AT&T;’s respected brand name.
“This is a logical and powerful alliance,” said Craig McCaw, chairman and chief executive of McCaw Cellular, which provides cellular service to more than 100 U.S. cities, including Los Angeles and San Francisco. “No deal ever made more sense to me.”
Beyond the immediate scope of the deal, which was roundly praised on Wall Street, analysts said the AT&T-McCaw; alliance could change the landscape of local telephone service and speed development of a nationwide wireless communications network.
If completed as now envisioned, the deal essentially puts AT&T; back into the local phone business--this time as a wireless telephone company--less than a decade after the Justice Department ordered AT&T; to divest its local Bell phone companies.
Analysts predicted that the AT&T-McCaw; combination would draw protests from local Bell phone companies fearful of losing their market dominance to both cellular service and the emerging new wireless technologies.
“The regional Bell companies will be screaming,” said A. Michael Noll, acting dean of the business school at the University of Southern California. “And it’s going to accelerate the coming huge battle between the Bell companies and their former parent, AT&T.;”
Terms of the deal, which are expected to be completed by the middle of next year, call for AT&T; to pay $2 billion to buy 47 million shares of new McCaw stock, the equivalent of $42 per share.
AT&T; would pay another $1.8 billion to acquire 35.8 million McCaw shares now owned by British Telecom, the equivalent of $49 per share. Combined, AT&T; would pay an average of $45 per share for a stake that would represent one-third of McCaw’s outstanding shares.
Furthermore, AT&T; could pay $100 million for an option that would allow it to purchase voting control of McCaw for an additional $600 million.
The prices are nearly twice what McCaw stock was trading for when the stock market opened Wednesday. McCaw shares rose $2.125 to $26.75 before trading was halted in advance of Wednesday’s midday announcement. The rise in McCaw’s stock prior to the announcement prompted the National Assn. of Securities Dealers to launch an investigation into possible trading irregularities.
News of the deal also drove up the prices of other cellular stocks. Vanguard Cellular rose $3.75 to $24.75; Centennial Cellular jumped $3.25 to $13.75, and Cellular Inc. rose $1.125 to $13.
AT&T; shares were trading at $42.75, down 62.5 cents, before being suspended prior to the news. Trading resumed later in the after-hours market, with some traders bidding AT&T; at $38.
Wall Street analysts applauded the plan for giving AT&T; entree into a fast-growing business and allowing McCaw the cash it needs to pay down its staggering $5.5 billion debt.
“It’s awesome,” said Robert Morris, a telecommunications analyst at Goldman Sachs in San Francisco. “It’s win-win. Besides money to refinance itself, McCaw gets marketing muscle and expertise. AT&T; would get back into the local distribution business again with the technology of tomorrow.”
The deal would be the second-largest ever for AT&T;, after its purchase last year of computer maker NCR Corp. for $7.4 billion.
