AT&T Co has decided that it would be a waste of time to pussyfoot around with a 30% stake in McCaw Cellular Communications Inc with a view to taking control sometime in the future, and yesterday announced that it was tearing up its agreements of last November in favour of a full share exchange acquisition of the pan-American cellular operator forthwith. It has agreed a one-for-one share exchange for the entire McCaw equity – including the near 20% held by British Telecommunications Plc – valuing the company at a whopping $12,600m. The effect was to boost the share prices of most other cellular issues, and underline the scarcity value of pure cellular plays like Vodafone Group Plc. McCaw shares rose $5.50 to $56.75, still well shy of the $62.625 at which AT&T shares are trading because of the time it will take for the deal to be completed. AT&T has set a ceiling of $71.73 on the price at which it is prepared to exchange on a one-for-one basis; if its shares are trading above that level at the time of closing seen as perhaps a year hence, it will scale down the number of shares it issues to McCaw holders, with a floor of 0.909 of an AT&T for each McCaw. At the other end of the scale, AT&T will issue up to 1.111 shares per share if its shares are trading below $53 at closing. The reason that AT&T regards McCaw as so valuable is that there are only two conventional cellular franchises in each US market, and only McCaw, by dint of assiduous buying, has assembled something near to a pan-US cellular network, making it well-nigh impossible for anyone else to assemble a comparable network of franchises. British Telecom will now receive AT&T shares worth about $2,200m for what is now a 17% stake in McCaw – a very much better deal than the one originally agreed, under which it would have got $49 in cash per share plus interest to cover the period between the agreement and completion. AT&T sees the acquisition making it a leading participant in the fastest-growing segment of the telecommunications industry and contribute to its objective of at least 10% annual earnings growth. Telecommunications is growing and converging with other industries so fast that it was almost impossible in our discussions to define and divide future opportunities between the two companies, said AT&T chairman Robert Allen. A merger offers the best, quickest way to go after this market. Wireless communications services are absolutely central to AT&T’s networking strategy and key to the company’s future earnings growth. It also says it aims for growth of its profits in the first year following the acquisition despite its expectation of earnings dilution of up to 10%. In addition to approval by McCaw shareholders, the US Department of Justice and the Federal Communications Commission, approval by state regulatory bodies in some states where McCaw does business will be necessary for completi on; the first is a done deal: hold ers of a majority of McCaw shares have agreed to vote in favour. The two companies also reached agree ment with some McCaw shareholders, subject to court approval, to set tle pending litigation involving the previously proposed transacti on. No AT&T or McCaw jobs will be lost as a result of the merger and McCaw’s headquarters will would remain in Kirkland, Washington. Craig McCaw will join AT&T’s board. McCaw turned over $1,740m including 52%-owned affiliate LIN Broadcast ing Corp in 1992; AT&T did $64,900m in 1992; McCaw has $9,200m in ass ets and long-term debt of $4,900m.
