Cingular, AT&T Wireless Connect

cingular and ATT logos
Cingular Wireless won the bidding war to acquire AT&T Wireless Services for nearly $41 billion in cash, a deal that would create the nation's largest cell phone company.

The merger between the second and third largest U.S. wireless companies was announced Tuesday as Britain's Vodafone Group PLC withdrew from the contest after four days of rising bids.

Combined, Cingular and AT&T Wireless will have 46 million subscribers, enough to leapfrog Verizon Wireless' market leading customer base of 37.5 million.

"They're going to get real true economies of scale in an industry where the margins have gotten pretty skinny, so I think this is one of those deals that going to happen in telecommunications that probably makes more sense than any others we'll probably see coming down the pike," analyst Art Hogan of Jeffries and Company told CBS Radio News.

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.

"I'll hang around anytime Stan wants me to and then I'm onto the next thing," Zeglis said. Pressed on the issue, he said he would not remain with the company after closing, adding "We don't need two new CEOs."

Guzman and Co. analyst Patrick Comack said he didn't 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, absent any further discussions with NTT DoCoMo, BellSouth chief executive Duane Ackerman said in an interview.

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, Cingular's 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.

Without detailing cuts, Ackerman said Cingular is expected to reap $1 billion in expense savings by 2006 because of the deal.

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 Cingular's Sigman: "Yes, there will be employees that will affected by this. What that number is we're 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 don't 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 company's 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.

"At $15 a share, it shows you just how exciting the bidding got," Morten Singleton, an industry analyst at Williams de Broe in London, told CBS MarketWatch.

The deal values AT&TW at 9.9 times its underlying earnings in 2005, which is currently higher than what the market has valued each of AT&TW's European peers.

A Vodafone deal would have required the British cell phone giant to sell its 45 percent stake in Verizon. The British company's shareholders also feared it would overpay for AT&T Wireless, reports CBS News Correspondent Steve Holt.

Vodafone shareholders "need to closely examine the U.S. strategy now but — and it's a significant but — the 45 percent stake in Verizon Wireless must be worth more than it was before this bidding began," Christian Maher, analyst at Investec Securities in London told CBS MarketWatch, with less competition now in the U.S.

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, both technically and in marketing.