Two Eastern Bells Agree to Merge in $22-Billion Deal
In what would be the second-largest corporate merger in U.S. history, Nynex Corp. agreed Sunday to combine with East Coast rival Bell Atlantic in a deal valued at $22 billion.
The merger would create the nation’s second-largest telephone company, behind long-distance giant AT&T; Corp.
The deal, which officials say they expect to complete within a year, is the second Baby Bell marriage announced this month, coming just three weeks after Texas-based SBC Communications Inc. announced it would buy San Francisco-based Pacific Telesis for about $17 billion.
The two deals mark furious efforts by telephone carriers and other communications companies to consolidate in preparation for new competition resulting from sweeping legislation signed into law by President Clinton in February.
The law requires local telephone monopolies to open up their markets to rivals in exchange for the freedom to enter the $70-billion long-distance and $25-billion cable TV industries.
The Bell Atlantic-Nynex merger is also part of a more general recent surge in large-scale corporate mergers, especially among entertainment, telecommunications and media companies seeking to gain advantage as their technologies and global markets converge.
Among the biggest U.S. mergers in history have been the Disney-Capital Cities/ABC deal earlier this year and the Time-Warner deal in 1989. But this newest combination would surpass even these, and would rank second only to the RJR Nabisco-Kohlberg Kravis Roberts financial marriage made at the height of the 1980s merger wave.
Over the long term, the wave of telecommunications mergers could lead to more choices and lower telephone prices for telephone consumers in California and nationwide. But analysts are divided over the near-term impact, which many fear could restrict competition.
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The companies, which said they would present their plans to state and federal regulators today, will likely face a more rigorous review than PacTel and SBC Communications, if only because there are more states reviewing this merger than in the PacTel-SBC deal.
Besides review by the public utility commissions of the 13 states where Bell Atlantic and Nynex provide service, the merger faces a federal antitrust examination from the Federal Communications Commission focusing on whether the merger would be in the public interest.
The agreement came after weeks of off-again, on-again talks between the two regional Bell companies and followed efforts by Bell Atlantic to court Pacific Telesis, long-distance carrier MCI Communications Inc. and cable giant TCI Inc. in a bid to leverage itself into one of the giants of the industry.
The two merging companies, which will be called Bell Atlantic, prepared a statement in anticipation of official announcement of the pact today.
Although company officials did not talk publicly about what jobs and services might be eliminated, Bell Atlantic officials said the company’s Philadelphia headquarters, which has already dwindled to fewer than 500 people as company Chairman Ray Smith has consolidated operations in Northern Virginia, will be moved to New York City and merged with Nynex.
Analysts said the merged companies, which now employ 133,000 people, are initially likely to spawn additional painful layoffs in an industry already reeling from a reduction of 75,000 jobs in the last 16 months.
Besides workers, investors and consumers nationwide could feel other impacts.
Analysts said Bell Atlantic and Nynex officials will mimic Pacific Telesis and announce a cut in stock dividends in conjunction with the merger, although investors have already enjoyed a lucrative increase in values in the two companies as merger rumors have circulated. Local consumers may be affected as the new company cuts costs to raise money to compete with global companies such as AT&T;, MCI and Sprint Corp.
“This may arguably be the worst merger of Baby Bells from the consumer perspective because there are no two other Bells more likely to compete” than Nynex and Bell Atlantic, said Bradley Stillman, policy director for the Consumer Federation of America.
“The things that monopolies do all the time is slow innovation and overprice their services and have customer service that is generally not as good as in a fully competitive market,” Stillman added.
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But while some consumer groups were lamenting the proposed merger, some competitors were relishing the thought of competing against two big bureaucratic monopolies.
“The biggest challenge they face is integrating two companies and doing it smoothly without any disruption of customer service. If they don’t do it well, I’m sure competitors like us will be standing by” to capitalize, said Robert Atkinson, senior vice president of regulatory affairs for TCG Inc., a local telephone provider that competes with the Baby Bells, mostly for corporate and business customers, in more than 20 states.
Bell Atlantic’s Smith will run the new company and retire a year after the merger is completed. Ivan G. Seidenberg, chairman and chief executive of Nynex, will then take control.
In a prepared statement obtained by The Times that was to be released today, Seidenberg outlined the company’s challenges.
“We must remain strong at home if we are to compete in the rapidly growing global communications marketplace,” he said. “Innovative marketing, quality of service and continuing the development of a modern network will be our top priorities.”
The combination of Bell Atlantic and Nynex, which already split the nation’s No. 1 local telephone market--New York City/New Jersey--would create a telephone giant serving 36 million customers in 13 states. The combined entity would have $3 billion in annual profits and $27 billion in annual sales from domestic phone service and other investments from ventures running from Mexico to New Zealand.
Shareholders of Bell Atlantic and Nynex would swap their shares for stock in a new company at a ratio of nearly seven Bell Atlantic shares for five shares of Nynex.
* ANALYSIS OF MERGER
The local phone business remains a powerful monopoly. D1
* RELATED STORIES: D2
