Cingular agrees to buy AT&T Wireless; would create nations largest cellular carrier

By The Associated Press

Posted 10:45AM on Tuesday 17th February 2004 ( 20 years ago )

Cingular Wireless won the bidding war to acquire AT&T Wireless Services for nearly $41 billion in cash, a deal that would create the nations largest cell phone company.The merger between the second and third largest U.S. wireless companies was announced Tuesday as Britains Vodafone Group PLC withdrew from the contest after four days of rising bids.Shares of AT&T Wireless shot up $2.01, or 17 percent, to $13.83 early Tuesday on the New York Stock Exchange.Combined, Cingular and AT&T Wireless will have 46 million subscribers, enough to leapfrog Verizon Wireless market leading customer base of 37.5 million.AT&T Wireless chief executive John Zeglis will not remain with the combined company once a deal is approved, he told reporters Tuesday in a conference call. Cingular CEO Stan Sigman will be chief of the company, Zeglis said.Ill hang around anytime Stan wants me to and then Im onto the next thing, Zeglis said. Pressed on the issue, he said he would not remain with the company after closing, adding We dont need two new CEOs.Guzman and Co. analyst Patrick Comack said he didnt think the deal would lead to higher wireless phone prices for consumers. You still have some very aggressive competitors out there. Customers still have five choices, he said.Cingular, a joint venture between SBC Communications Inc. and BellSouth Corp., said its winning bid was for $15 per share, an amount that would value AT&T Wireless at $40.7 billion. Cingular will also assume $6 billion of debt owed by AT&T Wireless. Cingular also will assume the 16 percent stake in AT&T Wireless held by NTT DoCoMo of Japan, a BellSouth spokesman said.The agreement, subject to the approval of AT&T Wireless shareholders and regulatory authorities, may be the largest all-cash transaction in U.S. history, said David Caouette, spokesman for AT&T Wireless.The combined company will carry the Cingular name and once a deal is approved billing and other operational functions will be merged, though there will be no immediate impact on customers, said Ralph de la Vega, Cingulars chief operating officer. The company will remain based in Atlanta.He said federal regulators may ask the combined company to divest certain assets where there is overlap.We think that there should not be any divestitures required, de la Vega said. The greatest competition is perhaps right here in the U.S. so the consolidation of two of the players should not cause any problems for competitors. Even in areas of overlap, there is sufficient competition not to warrant it.As far as possible job cuts or management changes, de la Vega indicated there could be some, though he would not elaborate. The combined company would have about 70,000 employees.We will look at the combined operations and look for where there is overlap and see where we can be more efficient, he said.Caouette of AT&T Wireless said some employees would be affected because large-scale mergers create duplicate functions that can be eliminated. AT&T Wireless had already planned to cut 1,900 jobs from of a work force of 31,000 by the end of 2005.Said Cingulars Sigman: Yes, there will be employees that will affected by this. What that number is were not into that level of planning yet.The analyst Comack said he expects there to be significant layoffs because there is so much overlap between the companies.They dont need the AT&T Wireless employees at all. They might save some salesman, but everything is redundant, Comack said. Cingular doubled their customer base and doubled their spectrum, but they can run that with the same amount of employees.In addition to paying AT&T Wireless shareholders a 27 percent premium over the companys closing stock price of $11.82 on Friday, the merger may ease the cutthroat competition in the U.S. cellular market, trimming the number of national players from six to five.Zeglis, the AT&T Wireless chairman and CEO, said in a statement that the transaction means a handsome return for investors, advantages for customers and more opportunities for employees.The deal brought to an end a heated bidding war between Cingular and Vodafone that saw both companies boosting their offers following a Friday deadline to submit bid sets by AT&T Wireless.Cingular, which had 23.4 million customers late last year, opened its bidding at $13 a share, or $35 billion, two sources told The Associated Press on condition of anonymity. It then raised its offer to $14 a share early Monday; Vodafone matched Cingulars offers in each stage of the process, a source said.De la Vega said the bidding heated up early Tuesday when Cingular raised its bid a final time to more than $40 billion. He said it is not clear if Vodafone dropped out of the race before or after Cingular upped its bid.A Vodafone deal would have required the British cell phone giant to sell its 45 percent stake in Verizon Wireless.After announcing it had dropped out, Vodafone said Tuesday that it remained committed to its existing position in the U.S. market with its successful partnership in Verizon Wireless.AT&T Wireless share price has risen steadily in recent weeks on news that it was putting itself on the auction block.The carrier, based in Redmond, Wash., has more than 22 million subscribers, including a sizable base of corporate clients who tend to use more services and spend more money.However, the company has struggled in recent months.Late last year, it couldnt add new subscribers because of a glitch in a new software system designed to improve customer service.AT&T Wireless also has acknowledged that it lost more customers than it gained under new federal rules that took effect in late November allowing cell phone users to change carriers without losing their phone numbers. The company has not released specific figures.SBC Communications Inc. owns 60 percent of Cingular, while BellSouth owns 40 percent. Shares of SBC fell 39 cents to $24.66, while shares of BellSouth fell 71 cents to $28.84 in trading early Tuesday.

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