Wedding Bells : Impact of the Deal

Spurred by the sweeping telecommunications legisation passed this winter by congress, SBC Communications Inc. and Pacific Telesis Group on Monday became the first of seven regional Baby Bells to propose a merger, in a deal valued at $16.7 billion. The combined company would take the SBC name. Here’s how the agreement may affect certain groups:

Consumers

The deal would not initially have a big impact on consumers, analysts agreed, adding that they do not expect the combined company to change its pricing strategy. However, consumer advocacy groups expressed concern that it would in the long run reduce competition and possibly lead to higher prices. As new players enter the California communications market, consumers can expect to be bombarded with advertising from competing telecommunications companies touting new cable, cellular and video services after the merger.

Employees

Although company representatives say the deal would create at least 1,000 more jobs in California, analysts say layoffs of a portion of the combined companies’ 108,000 employees would be inevitable. Company representatives say the deal is about growth and not downsizing.

Stockholders

Current PacTel stockholders would receive SBC stock. Based on the average of SBC’s closing stock prices last week, this implies a value of about $39 for each PacTel share. The exchange ratio has PacTel share owners receiving 0.733 shares of SBC common stock for each of their shares subject to certain adjustments.

Regulatory Environment

The companies see no antitrust issues raised by the proposed merger because they are not competitors in local exchange, long-distance or wireless markets. The deal requires approval of state regulators, the Justice Department and the Federal Communications Commission. Analysts expect the regulatory environment to be supportive of the merger.

Synergies

The deal would provide PacTel, considered the weaker of the two companies, with a stronger financial base and greater resources to battle the heavy competition it faces in California. PacTel would provide the combined company with an entrance into growing foreign telecommunications markets such as Asia, Mexico and Latin America. The combined company would take advantage of SBC’s proven strength in product development, marketing and sales and PacTel’s network engineering skills and its efficiency in process management and cost containment.

Sources: Brian Adamik and Boyd Peterson at Yankee Group; Times staff and wire reports

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Pacific Telesis Group

Headquarters: San Francisco

Chariman: P.J. “Phil” Quigley

Employees: 49,000

Products: Provides phone service in California and Nevada

1995 revenue: $9.04 billion

1995 operating profit: $1.05 billion*

Monday stock price: $33.75, up $6

Headquarters:

*An accounting charge of $3.36 billion resulted in a net loss of $2.3 billion

SBC Communications

Headquarters: San Antonio

Chariman: Edward E. Whitacre Jr.

Employees: 59,000

Products: Provides telephone service in Arkansas, Kansas, Missouri, Oklahoma and Texas. Has cellular operations in 61 U.S. markets. Offers voice-messaging services and interactive TV in some markets. Has stakes in phone companies in eight other countries

1995 revenue: $12.7 billion

1995 operating profit: $1.89 billion*

Monday stock price: $49.88, down $2.75

*An accounting charge of $2.82 billion resulted in a net loss of $930 million

Pacific Telesis states: California, Nevada

SBC states: Texas, Kansas, Missouri, Oklahoma, Arkansas

Source: Brian Adamik and Boyd Peterson at Yankee Group; Times staff and wire reports, Bloomberg Business news