The suggestion from USA Today that AT&T Co might be interested in buying into McCaw Cellular Communications Inc (CI No 2,038) received remarkably little currency, but late on Tuesday, AT&T duly announced that it was negotiating to take an initial 33% stake in McCaw, which would include the 22% held by British Telecommunications Plc. AT&T would pay British Telecom $49 a share, an $8 a share profit on the price it paid, although the true gain to the company is about wiped out by the interest it would have made on the cash during the time it held the stake. The total cost to AT&T including the new shares it plans to buy from McCaw is $3,800m.AT&T would also get an option that, if exercised, would lead to it acquiring voting control. British Telecom says it is selling because US rules do not allow it to hold more than 25% of a cellular company. For AT&T, the deal would take it back into local telephony for the first time since the break-up of the Bell System – but this time in competition with the Baby Bells, which are big cellular players as well as offering fixed local phone service. A crucial aspect of the deal is that McCaw, which presently uses the Cellular One name for the seamless pan-American service it is creating, would be licensed to use the AT&T brand name in marketing its services, and would also have access to AT&T’s marketing, sales, customer service and distribution channels, as well as to the research and development capabilities of AT&T Bell Laboratories. AT&T would buy 47m new ones at $42 per share, giving it 19%. McCaw would use the proceeds to pay down some of its vast debt burden. AT&T would get three seats on the board; the option on control will cost AT&T $100m, plus $600m on exercise, between one and seven years after completion. If the thing falls through, McCaw can ask AT&T to buy 14.5m shares at $27.625 apiece.
