AirTouch, US West in Cellular Merger Pact
AirTouch Communications Inc. and US West Media Group have agreed to speed up the merger of their cellular businesses with a $5-billion deal that would leave San Francisco-based AirTouch with 10 million cellular customers and allow US West to focus on cable television ventures.
The deal, reached late Thursday night, accelerates a long-standing plan to combine the cellular operations, which are now operated as a joint venture. If approved by the two companies’ boards of directors, shareholders and the Internal Revenue Service, the tax-free stock swap will be completed by the end of the year.
AirTouch, the 4-year-old spin-off of Pacific Telesis, and US West Media Group, the nontelephone arm of the Colorado-based Baby Bell, have been cooperating in the cellular business since July 1994. Under that plan, US West had up to 10 years to convert its share of the venture into AirTouch stock.
But analysts said that three-phase plan was extremely complicated and had company executives bogged down in minutiae instead of making money in the cellular business. Two weeks ago, AirTouch stock hit a 52-week low of $22, $1 below the price of its initial public offering.
Thursday’s deal underscores that AirTouch is the dominant pure player in the cellular arena and allows US West Media Group to focus on its cable operations, said Barry Sine, a telecommunications analyst with SBC Warburg Inc. in New York.
“There were a lot of questions on investors’ minds about how to value these companies,” Sine said. “They essentially decided they had to fish or cut bait, so they completed the transaction in one fell swoop.”
Investors approved of the move by bidding up shares of both companies Friday in New York Stock Exchange trading. AirTouch was up $1 to close at $24.50, and US West Media Group shares rose 37.5 cents to $17.625.
The new agreement calls for AirTouch to take over NewVector, US West’s domestic cellular business, along with the Baby Bell’s interest in PrimeCo Personal Communications, a PCS partnership that also includes Nynex and Bell Atlantic. The combined cellular business would continue to be operated out of the Bay Area suburb of Walnut Creek.
If the deal is approved, AirTouch would assume $2.2 billion of US West debt and distribute shares directly to US West shareholders in a tax-free maneuver. The number of shares AirTouch would issue would depend on the stock price at the time the deal is finalized.
The deal is contingent upon permission from the IRS to conduct the stock swap on a tax-free basis. US West plans to give Media Group shareholders stock in a newly formed company that would include everything except its domestic cellular businesses. The cellular operations would then merge with AirTouch, and US West shareholders would receive AirTouch stock tax-free. Under the previous plan, US West would have ended up owning the AirTouch stock.
While the deal represents US West’s exit from the cellular business, the company will continue to have a hand in the wireless world. Earlier this year, it acquired PCS licenses at federal auctions.
