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AT&T, BellSouth to Merge
Posted: 06-Mar-2006 [Source: AT&T]

[AT&T, BellSouth and Cingular Wireless to merge under the AT&T brand. Merger is expected to enhance operations at Cingular and position AT&T for a global IP network.]

San Antoinio & Atlanta -- AT&T Inc. and BellSouth Corporation announced today an agreement to merge the two companies, a combination that will create a more effective and efficient provider in the wireless, broadband, video, voice and data markets.

The merger will streamline the ownership and operations of Cingular Wireless, which is jointly owned by AT&T and BellSouth. The new company will be more innovative, nimble and efficient, providing benefits to customers by combining the Cingular, BellSouth and AT&T networks into a single fully integrated wireless and wireline Internet Protocol network offering a full range of advanced solutions.

As a result, the combined company will be better able to speed the convergence of new and improved services for consumers and businesses, and embrace the industry's shift to Internet Protocol network-based technologies.

"Logical Next Step That Creates Substantial Value"

"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

AT&T has committed to continue BellSouth's historic levels of charitable contributions and community activities, including the continued funding of charitable activities and economic development and education initiatives throughout BellSouth's nine-state area.

Customer Benefits

Consumers seeking a real alternative to cable monopolies should see faster and more economical deployment of next-generation IP television networks and similar services as a result of AT&T's groundbreaking entry into IPTV and the unparalleled research and development work at AT&T Labs, coupled with BellSouth's extensive deployment of fiber networks for DSL and other broadband services.

Business customers in the southeastern United States and the rest of the country stand to benefit from the expertise and innovation of AT&T Labs, as well as the combination of AT&T's state-of-the-art national and international networks and advanced services with BellSouth's local exchange and broadband distribution platforms and expertise.

The combined company will have greater financial, technical, research and development, network and marketing resources to better serve consumers and large-business customers, and will accelerate the introduction of new and improved product and service sets for those customers.

The merger would also give business and government customers, including military and national security agencies, a reliable U.S.-based provider of integrated, secure, high-quality and competitively priced services to meet their needs anywhere in the world.

Since AT&T and BellSouth are not actual competitors in the local, long distance and video markets, and because BellSouth is not a significant competitor with AT&T in the enterprise market, the merger will not reduce competition in any of those markets.

Terms and Conditions

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.

Making the Most of Wireless

One of the most immediate benefits of the transaction will be to streamline and enhance management and operations at Cingular.

While the majority of Cingular's operations will remain unchanged, simplifying the ownership structure will lead to more efficient marketing and service provisioning, which will come under a single AT&T brand, generating further financial synergies and customer benefits.

The merger will also allow for closer integration of the company's wireless, wireline, and IP products and services over a single global IP network. This is critical as the industry moves forward with convergence of the "three screens" that many consumers rely on most today - televisions, computers and wireless devices. It is an area in which AT&T is a leader through its strategic partnerships with Yahoo! and others.

Financial Expectations

In addition to the numerous customer benefits, AT&T and BellSouth expect the proposed transaction to yield substantial benefits for stockholders of both companies.

The merger combines three companies that currently operate separately and independently: AT&T, BellSouth and Cingular Wireless. 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. Currently, the three companies support three distinct brands with three separate advertising campaigns. Following the merger, they expect to move to a single brand: AT&T.

AT&T expects the transaction to be adjusted earnings-per-share neutral in 2007 and have a positive impact on its adjusted earnings per share thereafter (adjusted earnings per share exclude all merger integration costs and non-cash expenses for amortization of intangibles). AT&T expects that the merger will reinforce the guidance it provided at its Jan. 31, 2006, analyst conference.

* There is no change to AT&T's 2006 outlook. * AT&T continues to expect double-digit adjusted EPS growth in each of the next three years with significant growth in free cash flow after dividends. Free cash flow after dividends is expected to exceed $4 billion in 2007 and exceed $6 billion in 2008. * Total revenues, including Cingular, are expected to return to growth in 2007, a year earlier than previous guidance. * Capital expenditures, including Cingular, are expected to be in the mid teens as a percentage of revenues in 2007 and 2008. * The transaction also is expected to improve AT&T's overall growth profile - driven by wireless, which will represent about one-third of the combined company's expected revenues in 2007, and by expanded opportunities in business markets. * AT&T expects free cash flow after dividends from the combined company to provide the flexibility to continue reducing debt levels over the next five years while providing excellent cash returns to stockholders.

AT&T and BellSouth expect that the combined company will have a strong balance sheet with solid credit metrics. Both companies have single A credit ratings.

Expanded Share Repurchase

AT&T's board of directors has approved an expanded share repurchase authorization of 400 million shares through 2008, replacing the existing program. Under this authorization, the company expects to buy back at least $10 billion of its common shares over the next 22 months. It expects at least $2 billion in repurchases during 2006, consistent with its previous guidance, and an additional $8 billion in repurchases in 2007. This repurchase authorization is intended to approximate the share premium paid to BellSouth stockholders as part of this merger transaction. The timing and nature of these repurchases will depend on market conditions and applicable securities laws.

New Company Leadership

Mr. Whitacre will serve as chairman, CEO and a member of the board of directors of the combined company. Mr. 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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