AT&T; to Buy Teleport in $11.3-Billion Deal
After sitting out a wave of consolidation in the telephone industry, AT&T; Corp. jumped into the fray Thursday, agreeing to buy Teleport Communications Group, which offers local phone service in California and 27 other states.
The acquisition, valued at $11.3 billion in stock, is the first major AT&T; purchase engineered by new Chief Executive C. Michael Armstrong. It would give the long-distance giant an entry into territory covered by regional Bell telephone companies.
Teleport offers local phone service primarily to businesses in 66 major cities, including Los Angeles, San Francisco, New York, Chicago and Washington. The Staten Island, N.Y.-based company has 3,000 employees and annual revenue of $500 million.
The deal, approved late Thursday, would give AT&T; a state-of-the art fiber-optic communications network to offer local phone service, Internet access and data communications.
Three cable-TV companies that are majority shareholders of Teleport--Cox Communications, Comcast Corp. and Tele-Communications Inc.--also approved the agreement.
Armstrong said the deal will cut AT&T;’s costs by $1 billion in the first year of the deal and more than $2 billion annually by 2002. It also will enable AT&T; to sell all-in-one packages of local, long-distance and data communications services to businesses, the most lucrative part of the telecommunications industry.
“This is a great match with powerful financial and strategic synergies for both companies,” Armstrong said. “Joining forces with TCG will speed AT&T;’s entry into the local business market, reduce our costs and enable us to provide businesses . . . the services they want.”
AT&T; last year stopped marketing local phone service to residential customers, saying that it was paying local Bell companies too much to lease lines from them. While it’s currently focusing on selling local service to business customers, AT&T; says it still plans to expand into the consumer side of local service.
“What this deal is a confirmation of is that owning local infrastructure and being able to offer a range of services is a prerequisite to survival in the telecom industry today,” said Mike Smith, a telephone analyst with Probe Research Inc. in Cedar Knoll, N.J.
The deal, which faces federal antitrust scrutiny as well as a review by the Federal Communications Commission, follows SBC Communications Inc.’s $15.7-billion purchase of Pacific Telesis Group; the $22-billion merger of Bell Atlantic Corp. and Nynex Corp.; and Worldcom Inc.’s pending $37-billion merger with MCI Communications Inc.
AT&T; agreed to swap slightly less than one of its common shares for each Teleport share, valuing Teleport at close to $59 a share--a nearly 10% premium above Teleport’s Thursday closing price. Teleport shares fell $3.63 to $54.13 on Nasdaq; AT&T; rose $2.63 to $62.63 on the NYSE.
Robert Annunziata, chairman and chief executive of Teleport, will become executive vice president of AT&T;, heading a new local services unit with offices in Basking Ridge, N.J.
Armstrong said although he held extensive discussions with Teleport’s cable owners, he has no immediate plans to forge technical ties between AT&T;’s phone network and the cable operator’s lines.
Although most experts praised the deal, some analysts and rivals criticized the acquisition, saying that AT&T;’s purchase could stifle Teleport and curtail AT&T;’s own experimentation with promising wireless phone technologies aimed at bringing high-speed communications links to residential subscribers.
Announcement of the deal drew a bitter response from Bell Atlantic Corp., a Baby Bell serving the lucrative New York City area where Teleport has extensive operations.
“This deal puts a lie to everything that AT&T; and the long-distance companies have been saying about the state of local competition,” the company said in a prepared statement. “Regulators should finally allow us to offer the same set of services, including long-distance, that others can.”
Times wire services contributed to this report.
