After leaving all the acquisitions to its rivals while it stumbled to find a permanent CEO, AT&T is to acquire Teleport Communications Group Inc. The deal which has been expected for sometime, will see AT&T pay $11.3bn for the Staten Island, New York-based Teleport in an all stock transaction with each Teleport share to be exchanged for 0.943 of an AT&T share. Although Teleport is expected to have 1997 revenues of only about $500m, it does have local phone networks in 65 major US cities including New York and Los Angeles. The deal will give AT&T a way to by pass the regional Bell operating companies in its bid to enter the local market for customers in US urban centers. However, AT&T says it will be using the Teleport network to target business not residential customers. AT&T Chairman and CEO Michael Armstrong said the deal was primarily focused on business markets and that AT&T was looking to take advantage of other strategies for the domestic market. Armstrong added that he expected the AT&T to be able to offer bundled local and long-distance services as soon as the deal, which is subject to regulatory approval, is completed. This, he estimated would be in the fall of this year. Teleport’s network was built as part of its cable company investors Cox Communications, Comcast Corporation, and Tele- Communications Inc, which together held approximately 95% of the voting power and 66% of the equity ownership of Teleport. As part of the deal AT&T says the companies have signed long-term agreements under which they will continue providing certain construction and maintenance services to Teleport after the merger. Rumors of an expected AT&T offer of $56 per Teleport share had sent Teleport’s share price down during yesterday’s trading. Shares dropped 6.28% yesterday at the close of the market before AT&T announced the deal. Teleport closed the day down $3.625 at $54.0625 while AT&T closed up $2.625 at $62.625. Teleport shares have been riding high on market speculation that an acquisition may be imminent rising from $49 a share in early December to a peak of $60.187 by December 10 as rumors intensified. AT&T last year invested $1bn in local phone businesses, building both wireless and wireline networks, while profit growth from long-distance phone services ebbed. AT&T said that it expects the merger to bring cost savings of in excess of $1bn in its first full year and of $2bn by 2002. According to AT&T CFO Dan Somas, the saving will be from access costs, switch deployment and long distance call costs. While its telecoms rivals both in the US and around the world have been increasingly looking to acquisitions to boost their position in the booming telecoms market AT&T, has not made an acquisition since it paid $11.5bn for McCaw Cellular Communications in 1994. The Teleport deal, however, puts AT&T at the head if an impressive buying chain as Teleport is in the process of taking over ACC Corp for $1bn, which is itself buying US Wats Inc.
