SBC to Acquire AT&T

SBC(SBC) formalized its agreement to take over AT&T(T), ending more than a century of autonomy for the storied phone company and possibly spurring more deal-making in the telecommunications sector.

SBC will exchange stock and cash worth $16 billion, or roughly $19.71 an AT&T share, in the transaction. Most of the compensation is in the form of stock: for each share owned, AT&T shareholders will receive 0.77942 shares of SBC stock worth $18.41 at Friday's close.

AT&T, which closed at $19.71 Friday, was recently down 71 cents, or 3.6%, to $19 on Instinet. SBC fell 3 cents to $23.59.

The companies see the deal adding to cash flow in 2007 and adding to earnings in 2008. The companies expect the transaction to yield $15 billion in cost synergies, almost all of them from reduced costs beyond cost improvements from both companies' ongoing productivity initiatives.

"SBC expects the acquisition will slow its revenue growth rate in the near term following the closing," the acquirer said. "New revenue opportunities include expanded wireless sales in the enterprise space and taking AT&T's industry-leading portfolio of enterprise IP-based services down market to small business and residential customers."

Regarding AT&T, SBC said its revenue models are conservative following several years of declining sales.

"AT&T's revenues have declined over recent years as it has transitioned from a voice long-distance business to an emphasis on business and data markets, and those declines are expected to continue," SBC said. "At the same time, AT&T's next-generation IP and e-services revenues grew 11% in 2004."

Speculation has been rampant on Wall Street that an SBC-AT&T deal would spur more consolidation among telephone companies, possibly causing Verizon(VZ) to make a play for Sprint(FON). Sprint is currently in a pact to acquire Nextel(NXTL).

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