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SBC Is Near Deal To Acquire AT&T For $16 Billion

By Yuki Noguchi
Washington Post Staff Writer
Monday, January 31, 2005; Page A01

AT&T Corp., the matriarch of the modern telephone business, is close to selling itself to one of its progeny, SBC Communications Inc., as part of a tentative $16 billion deal that would create the nation's largest telecommunications company.

The boards of directors of both companies met yesterday in New York and San Antonio. SBC voted to approve the proposed deal while AT&T's board continued to meet this morning to consider the proposal, according to sources from both companies.

AT&T Through the Years
AT&T-SBC Union Now Looks Possible (The Washington Post, Jan 28, 2005)

An agreement, which could be announced as early as today, would cap weeks of negotiations and would end AT&T's 128-year reign as the nation's best-known phone company. If the deal meets with regulatory approval, the combined companies would eclipse Verizon Communications Inc., with 60 million residential consumers, millions of business customers and more than $70 billion in combined annual revenue.

The fate of the AT&T brand, still one of the most recognized around the world, is uncertain, as is the future of AT&T's consumer services, said the sources, who spoke on condition of anonymity because of the ongoing negotiations.

The deal would reunite two parts of the original AT&T, which a judge ordered to be broken up in the mid-1980s to foster competition and innovation and reduce the then-monopoly's lock on the marketplace.

The combined company, with more than 200,000 employees, would become a major local and long-distance powerhouse, especially in a 13-state region that includes California, Texas and Illinois, where SBC is the dominant phone provider. SBC, based in San Antonio, also owns 60 percent of Cingular Wireless, the largest mobile phone company; sells high-speed data service; and has pledged $4 billion toward building a fiber-optic network, which eventually would deliver video services. With the addition of AT&T, SBC would acquire the nation's largest long-distance carrier, its vast national and international network, and a roster of lucrative business and government customers.

Although AT&T, based in Bedminster, N.J., is still a major household brand, its business has fallen off dramatically in recent years. Sales continue to erode in its core long-distance business as more consumers turn to e-mail, wireless phones and new Internet phone technology as a substitute for long-distance calling. As revenue dwindled, AT&T began to sell off its parts, handing Comcast Corp. its cable business in 2001 and then spinning off its wireless phone business that same year. AT&T eventually stopped selling local service after regulators decided to phase out the discounts the company had used to lease access to local phone networks.

AT&T's diminished reach was reflected in its $16 billion selling price, a fraction of the $41 billion Cingular paid last year for AT&T Wireless. Sprint Corp. of Overland, Kan., and Nextel Communications Inc. of Reston have agreed to merge for $35 billion.

Under the tentative deal, SBC would pay $15 billion in stock and $1 billion in a special dividend payment to AT&T shareholders. SBC's chairman and chief executive, Edward E. Whitacre Jr., would retain his titles in the merged company. AT&T's chairman and chief executive, David W. Dorman, would become president.

Analysts said the deal between SBC and AT&T could spur more merger activity, possibly involving giants such as Verizon Communications Inc., MCI Inc. and BellSouth Corp. because SBC has effectively been able to expand its national footprint.

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