SBC Communications and Ameritech to Merge
Creates National and Global Competitor: A New Kind of Telecommunications Company
San Antonio, Texas, San Antonio, Texas, May 11, 1998
SBC and Ameritech
National-Local Strategy: Top 50 U.S. Markets*
*Maps and charts in PDF format; requires Acrobat Reader software, downloadable from www.adobe.com.
SBC Communications Inc. (NYSE: SBC) and Ameritech Corporation (NYSE: AIT) have agreed to a $62 billion, industry-transforming merger that will create a new type of telecommunications company with a "national-local" focus combined with national and international service capabilities. The company will have the assets, scope and strategies to compete against incumbent local telecommunications companies, competitive local exchange carriers, long distance companies and global competitors.
"The merger will enable the new SBC to accelerate and expand telecommunications competition by entering 30 U.S. markets outside its traditional 13-state local region (see attached list) so that the combined company will serve customers in all the top 50 markets in the nation. In addition, the new company will build on its growing international presence to serve a worldwide market. We will provide a competitive, integrated mix of local, long distance, Internet and high-speed data services providing more choices, new and improved services, more competitive prices and more convenience for millions of consumers, giving us the opportunity to create significant value for our shareowners," said Edward E. Whitacre Jr., chairman and chief executive officer of SBC.
"This transaction will allow us to implement a 'national-local' strategy in which we will offer local services across the country in combination with major national and international operations," Whitacre added. "It will transform us from a regional company to a new kind of company that uses its premiere networks to focus on 'national-local' and global markets. We will then be positioned to compete head-to-head with incumbent local telephone companies, competitive local exchange carriers (CLECs), data networks, long distance carriers and global competitors."
"We know we have the people, resources and the ability to make our new company an unqualified success for our customers, our employees, and our shareholders. We leap forward in terms of our ability to invest in new technology and become a leading player in the global marketplace," said Richard C. Notebaert, chairman and chief executive officer of Ameritech.
Ameritech shareholders will receive a fixed exchange ratio of 1.316 SBC shares for each share of Ameritech. Based upon closing prices as of May 8, after adjusting for the exchange ratio, the combined companies' value is $146 billion. The transaction will be a tax free, stock-for-stock exchange and will be accounted for as a pooling of interests. The combined company will be called SBC and will be approximately 56% owned by SBC's existing shareowners and 44% by Ameritech's existing shareowners (ownership percentages are prior to SBC completing its merger with SNET).
"The Telecommunications Act of 1996 helped open the door to a period of rapid change in the telecommunications industry. But so far, it has not created the level of competition that many expected," said Notebaert.
"This merger is critical because it transforms us into a company that has the size, scope and incentive to make the promise of the Act a reality. This new company will be in the best position to serve our customers in the evolving marketplace. We expect to see, in the next few years, the emergence of integrated national and international operators. Successful carriers will either be part of this group or more narrowly focused niche players. Our combined company intends to be one of the successful global operators," said Notebaert.
"This merger should be viewed as a welcomed development by regulators," said Whitacre. "If they are looking for a truly potent way to jump start competition, then approving this merger should be a clear decision."
"We are going to take advantage of the best employee team, the best customer service, and the best technology around," said Whitacre.
The executives noted several benefits of the merger at the announcement:
The combination will also result in significant opportunities for revenue growth, technology development, cost synergies and other benefits. "We expect to optimize costs through increased economies of scale and scope, the elimination of duplicated expenditures and the adoption of best practices in cost control," said Whitacre. "We expect to grow revenues more rapidly than would have been possible independently both in our existing service areas and in new markets. These synergies can be used to integrate our two companies, improve our operations, benefit our customers and fund expansion.
"The experience and knowledge we have gained from the very successful integration of Pacific Telesis makes us very confident about our ability to realize the potential financial and strategic benefits of the combination with Ameritech. Going forward the transaction and strategy announced today will diversify our sources of earnings and establish a platform for sustainable future growth," Whitacre continued.
The anticipated cost synergies resulting from the merger will not result in any net job reductions in the combined company. As a result of growth in existing lines of business, out-of-region expansion and new opportunities in data, long distance and other new services, the total number of employees is expected to rise over the next few years.
In fact, SBC made a commitment to Ameritech that employment levels in the five-state region will not be reduced due to the transaction, as well as to:
After the transaction is completed, Whitacre will remain as chairman and chief executive officer of SBC. Notebaert will remain as chairman and chief executive officer of Ameritech. Upon closing of the merger, SBC's board of directors will be expanded to include Notebaert and four other current Ameritech directors.
The merger is subject to shareholder and regulatory approvals. Since federal law prohibits ownership of overlapping wireless licenses, the companies will divest certain cellular properties. "Given the size and significance of the transaction we expect close scrutiny but ultimate approval from regulatory authorities," said Whitacre. "Obviously, given the paradigm shifting potential of this merger and the rapid changes in our business, the sooner we can deliver the benefits of this merger to consumers, the better. We recognize that we need the support of regulators for this transaction to be approved. We are committed to listening to any concerns they might raise, and to working with them to promptly resolve any issues. We anticipate the transaction closing within a year," he continued.
Salomon Smith Barney acted as the financial advisor to SBC Communications on the transaction. Goldman Sachs & Co. advised Ameritech.
SBC Communications Inc. is a global leader in the telecommunications industry, with nearly 34 million access lines and over 5.6 million wireless customers across the United States, as well as investments in telecommunications businesses in 10 countries. Under the Southwestern Bell, Pacific Bell, Nevada Bell and Cellular One brands, SBC, through its subsidiaries, offers a wide range of innovative services, including local and long-distance telephone service, wireless communications, paging, Internet access, and messaging, as well as telecommunications equipment, and directory advertising and publishing. SBC (www.sbc.com) has more than 118,000 employees and reported 1997 revenues of $25 billion. SBC's equity market value of $80 billion as of March 31, 1998, ranks it as one of the largest telecommunications companies in the world.
Ameritech serves millions of customers in 50 states and 40 countries. Ameritech provides a full range of communications services, including local and long distance telephone, cellular, paging, security services, cable TV, Internet service and more. One of the world's 100 largest companies, Ameritech (www.ameritech.com) has 73,000 employees, 1 million shareowners and nearly $28 billion in assets.
New Markets for the New SBC
|Below are the markets where the new SBC plans to compete under the "National-Local" strategy, ranked by size.||Below are the markets in which SBC and Ameritech currently offer services, ranked by size:|
|1. New York||1. Los Angeles||(SBC)|
|2. Philadelphia||2. Chicago||(AIT)|
|3. Boston||3. Detroit||(AIT)|
|4. Washington||4. Dallas-Ft. Worth||(SBC)|
|5. Miami-Ft. Lauderdale||5. Houston||(SBC)|
|6. Atlanta||6. San Francisco/Oakland||(SBC)|
|7. Minneapolis - St. Paul||7. San Diego||(SBC)|
|8. Phoenix||8. St. Louis||(SBC)|
|9. Baltimore||9. Cleveland||(AIT)|
|10. Seattle-Everett||10. San Jose||(SBC)|
|11. Denver - Boulder||11. Kansas City||(SBC)|
|12. Pittsburgh||12. Sacramento||(SBC)|
|13. Tampa - St. Petersburg||13. Milwaukee||(AIT)|
|14. Portland||14. San Antonio||(SBC)|
|15. Cincinnati||15. Indianapolis||(AIT)|
|16. Salt Lake City - Ogden||16. Columbus, OH||(AIT)|
|17. Orlando||17. Hartford/New Britain||(SBC)|
|18. Buffalo||18. Oklahoma City||(SBC)|
|19. New Orleans||19. Austin||(SBC)|
|20. Nashville - Davidson||20. Dayton||(AIT)|
|22. Las Vegas|
|23. Norfolk - Virginia Beach|
|25. Greensboro - Winston -Salem|
|29. Providence - Warwick|
|30. Albany - Schenectady - Troy|
TERMS OF THE MERGER AGREEMENT
The transaction will be a tax-free, stock-for-stock merger, with
Under a fixed exchange ratio, shareowners of Ameritech will receive 1.316 shares of SBC common stock for each of their shares. Based on the value of SBC's closing stock price on May 8, 1998 of $42 3/8, this will represent a value of approximately $55.77 for each Ameritech share.
The purchase represents approximately a 27 percent premium to Ameritech's closing price on May 8, 1998, of $43 7/8 per share. The merger gives Ameritech a total equity value of $62 billion and an enterprise value, including debt, of $71 billion.
Pro forma, the combined company, on a pre-SNET merger completion basis, will be owned 56 percent by SBC shareowners and 44 percent by Ameritech shareowners.
SBC and Ameritech hope to complete the merger within a year. The merger must be approved by the Public Utilities Commissions in Ameritech's regions, other local regulators and the Federal Communications Commission. The United States Department of Justice will review the transaction to determine if there are any anti-trust issues. Some European countries will conduct their own reviews.
Under provisions of the merger agreement, Ameritech may not solicit other potential acquirers.