AT&T to Merge with BellSouth

AT&T Inc. and BellSouth Corp. announced today an agreement to merge the two companies, allowing for the integration of the Cingular, BellSouth and AT&T networks into a single wireless and wireline IP network that will be marketed under the AT&T brand.

AT&T Inc. is the result of the recent merger of SBC Communications Inc. and AT&T Corp. The addition of BellSouth combines four of the original Bell operating companies (SBC previously had acquired Ameritech and Pacific Telesis) with their predivestiture parent.

Under terms of the agreement, approved by the boards of directors of both companies, shareholders of BellSouth will receive 1.325 shares of AT&T common stock for each common share of BellSouth. Based on AT&T’s closing stock price on March 3, 2006, this exchange ratio equals $37.09 per BellSouth common share. This represents a 17.9 percent premium over BellSouth’s closing stock price on March 3, 2006, and a total equity consideration currently valued at approximately $67 billion.

The merger, which is subject to approval by shareholders of both companies, as well as regulatory authorities and to other customary closing conditions, is expected to close within approximately 12 months.

“This merger is a logical next step that creates substantial value for customers and stockholders of both AT&T and BellSouth,” said AT&T Chairman and CEO Edward E. Whitacre Jr. “It will benefit customers through new services and expanded service capabilities. It will strengthen Cingular through unified ownership and a single brand. And we are confident that this is a merger we can execute, based on our track record with previous integrations and our experience working closely with BellSouth to create and build Cingular Wireless, and operate

“This was the right time for this merger,” said Duane Ackerman, chairman and CEO of BellSouth. “This combination is good for our employees, our customers and our stockholders.”

AT&T and BellSouth estimate that synergies from the combination will ramp quickly to reach an annual run rate exceeding $2 billion in the second year after closing, and estimate the net present value of expected synergies at nearly $18 billion.

A substantial portion of synergies are expected to come from reduced costs in the operations of unregulated and interstate services, and corporate staff, and the synergies are over and above expected productivity improvements from the companies’ ongoing initiatives. Approximately half of the total cost savings are expected to come from network operations and IT, as facilities and operations are consolidated and traffic is moved to a single IP network. Additional savings are expected to come from combining staff functions and from reduced ongoing advertising and branding expenses.

The companies said one of the most immediate benefits of the transaction will be to streamline management and operations at Cingular.

Whitacre will serve as chairman, CEO and a member of the board of directors of the combined company. Ackerman will serve as chairman and CEO of BellSouth operations for a transition period following the merger. Additionally, three members of BellSouth’s board of directors will join the AT&T board. The corporate headquarters for the combined company will remain in San Antonio. Cingular’s headquarters will remain in Atlanta, as will the combined company’s Southeast regional telephone company headquarters.





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