Bell Atlantic, GTE Announce Deal
Bell Atlantic and GTE boards have approved a $55 billion stock swap to merge the two Baby Bells, the companies confirmed on Tuesday.
The deal combines GTE's local, long-distance, wireless and Internet offerings with Bell Atlantic's wireless and local phone service.
Bell Atlantic said GTE shareholders will get 1.22 shares of Bell Atlantic per share of GTE.
Bell Atlantic and GTE see the deal adding to operating net profit in the first year. The two companies will shed some overlapping management positions; no hourly positions will be cut.
The two companies predict $2 billion in cost savings within the next three years. The merged company will have its headquarters in New York City.
The "merger of equals" was announced by Bell Atlantic Chairman Raymond W. Smith, Bell Atlantic Chief Executive Officer Ivan Seidenberg, and GTE Chairman and Chief Executive Officer Charles R. Lee.
"The transaction . . . means more competition," said Bell Atlantic's Seidenberg. "The combined enterprise will have the financial, operational and technological resources to compete effectively against the strategies of AT&T and TCI; SBC and Ameritech; WorldCom and MCI and others, both current and future."
Lee and Seidenberg will both serve on the company's board. Seidenberg will serve as president of the newly merged company and co-CEO. Lee will be chairman and co-CEO. On June 30, 2002, Seidenberg will become the sole CEO, with Lee continuing and non-executive chairman until June 30, 2004, when he will be succeeded by Seidenberg.
The deal comes two days after AT&T Corp. and British Telecom confirmed plans to link their international operations to create a company with $10 billion in sales.
The merged company, with 1997 combined revenues of $53 billion and a current combined market cap of about $125 billion, is targeting annual earnings per share growth of 15 percent, which is above current expectations.
U.S. phone companies like Bell Atlantic and GTE are anxious to forge ties with big players to stay competitive in the phone market and to pool capital investment resources.
The refrain isn't new to telecom analysts, who've been watching the major players shift partners and announce services pacts at a fast clip over the past year.
"Any company that wants to become a global company five years from now -- and there will probably only be a handful - needs to get a lot bigger pretty quick," said Mel Marten at Edward Jones.
Joining GTE gives Bell Atlantic access to the long-distance market - a first time for a Baby Bell.
Such a merger is a "plausible" alternative for Bell Atlantic, Robertson Stephens analyst Tom Horan said Monday. "Everyone is talking to everyone else," he said. "It makes a lot of sense, but Bell Atlantic-Bell South (BLS) made more sense."
Bell Atlantic's stock fell 3/16 to 45 on the reports on Monday. GTE's lowered 2 3/16 to 55 3/4.
Some analysts are expecting rgulatory hurdles. Possible problems with the regulators put a damper on the stocks, they said. None of the Baby Bells have been allowed to get into the long distance business.
"A merger would give (Bell) a lot of control over the local lines and the ability to offer long distance nationwide," Marten said. "I think this merger would receive the harshest regulatory review that we've seen so far. I think it's chances would be just higher than 50-50."
Together, the two would control about one third of U.S. residential lines, he said.
Bell South gained 3 3/16 to 72 3/16. US West was up 1/4 to 53 11/16 on Monday. The two are seen the last remaining unaligned local phone companies. Telecom companies tracked by the Philadelphia Telecom-Phone index were up 0.5 percent.
On Sunday, AT&T and BT confirmed they are peeling off their international networks and traffic to form a $10 billion joint venture focused on multinational business customers and e-commerce that will be based in the U.S.
Moreover, the two telephone giants are pooling investments in technology to build an Internet service that carries voice, data and video at a high rate of speed targeted at businesses in 100 cities.
AT&T's stock rose 1/16 to 60 points, while BT's stock climbed over 10 percent to a record high in London. BT's ADRs rose 8 3/8 to 146 1/8. BT is contributing fewer assets to the 50-50 joint venture than AT&T.
The two companies said they will turn over more than 250 of their largest multinational business customer accounts to launch the new, as-yet unnamed venture. The venture is expected "to lead to modest earnings accretion" for shareholders in the first year. See company statement.
While the companies expect regulators to back the venture within 12 months, telecom analyst Jeffrey Kagen said over the weekend that the two companies "are in denial"" if they believe regulators will bless the pact.
The companies expect venture to deliver operating profits of some $1 billion in its first full year, growing between 15-20 percent a year. Revenue, expected to reach $10 billion in its first year, are seen increasing over 15 percent a year.
Written By Emily Church And Steve Gelsi