Ameritech to Pay Banker for Regulatory Aid
Ameritech Corp. cast Goldman, Sachs & Co. in an unusual role, promising the investment bank as much as $10 million to help get regulatory approval for one of the telecommunications industry’s biggest acquisitions.
Goldman is advising Ameritech on SBC Communications Inc.’s $67.3-billion bid for the Chicago-based regional telephone giant. The investment bank will earn as much as one-quarter of its $40-million fee by providing “reasonable support” in Ameritech’s negotiations with regulators, according to documents filed with the Securities and Exchange Commission.
Several merger experts and industry analysts say it’s novel to base part of a banking fee on a matter traditionally delegated to lawyers. Ameritech essentially is focusing its resources on what will be the most difficult hurdle to joining forces with SBC, they say.
“Regulatory approval is clearly the bottleneck” for the SBC acquisition, said Robert Venable, a telecommunications analyst at Robert W. Baird & Co., a Milwaukee-based brokerage. “You want as many people as possible helping to remove that barrier.”
San Antonio-based SBC is issuing about $58 billion in stock to acquire Ameritech and assuming another $9.2 billion of debt. The transaction would create the largest local telephone company in the nation, with annual revenue of $41 billion.
The purchase is expected to undergo scrutiny from regulators, who have faced criticism because the 1996 Telecommunications Act has provided little new competition. In addition, the law has yet to yield the promised price decreases for telephone service.
“If you are the regulators, it is in your best interest to make the process as arduous as possible,” Venable said. “To the extent you are going to get some concessions out of SBC and Ameritech, this is the best chance to do it.”
George Stenitzer, an Ameritech spokesman, said the company wants Goldman to provide back-office support to help with its filings and testimony in getting the acquisition approved. “Specifically, we are looking for them to help demonstrate how and why the transaction will result in increased competition in the market.”
Ameritech shares fell $1.25 to close at $42.75 on the New York Stock Exchange and SBC shares fell $1.06 to $40.13, also on the NYSE. A Goldman official declined to comment.
Analysts say they expect that the Federal Communications Commission and the Justice Department will ultimately approve the Ameritech transaction, noting that the agencies have already blessed SBC’s acquisition of Pacific Telesis Group and Bell Atlantic Corp.’s purchase of Nynex Corp.
“We are very confident of getting all necessary regulatory approvals in 12 to 15 months,” said Richard Hetke, an Ameritech attorney.
Goldman can play a key role in providing the information and analyses Ameritech will need to show that a combination between the two regional Bells won’t cut competition. Goldman also can help SBC and Ameritech quantify cost savings before state regulators who want lower phone bills for their residents.
Goldman, one of the most sought-after merger advisors, has worked on several recent telecommunications transactions. The firm advised MCI Communications Inc. on a bid by shareholder British-Telecommunications and Brooks Fiber Properties Inc. on an offer by WorldCom Inc., according to Richard Peterson, an analyst at Securities Data Co., a Newark, N.J.-based company that compiles data on mergers.
