AT&T Wireless, the urge to merge


The Wall Street Journal is reporting that the bids for AT&T Wireless are finally making their way to the Washington state. NTT DoCoMo, of Japan has also made a big and has several backup strategies, the paper reports. NTT owns 17% of AT&T Wireless. The Journal says that AT&T has also received express interest from the likes of Nextel Communications and Vodafone. AT&T board will discuss various proposals it is said. Of the competing bids, only Vodafone would make sense because they need a GSM network in US and are said to be quite unhappy with Verizon.

So why does AT&T want to sell now? Maybe it is because they are really getting pounded and losing customers as a result of the wireless number portability. FBR analyst, Susan Kalla thinks that “ AWE’s performance could lag group averages in 2003 and AWE’s underperformance could intensify in 2004. Management has missed on some of its performance targets for investors in 2003 and could continue to do so in 2004, which may be making the Board rethink the company strategy and wish to explore alternatives to the current plan.” Good points.

Cingular, in my opinion will have to pay a lot more than $11 a share. With about $16.5 billion in revenues, AT&T Wireless is worth more than $27 billion all cash offer made by Cingular. Reason: spectrum constraints are finally beginning to choke Cingular. For instance, Cingular has no radio spectrum in top markets such as Denver, Phoenix and Minneapolis. “Cingular is the most spectrum-constrained of all the carriers and the spectrum problems could be alleviated with AWE,” says Kalla. Its GSM networks has holes bigger than the looming fiscal deficits. Cingular has 25 MHz of spectrum in most major cities, but has only 10 to 15 MHz in many smaller markets. As a result Cingular has a brand name which says: this service sucks.

AT&T Wireless could lower Cingular’s roaming costs. Cingular uses the T-Mobile network in cities where it does not have its own network. And last but not the least, it needs a massive wireless presence, because both BellSouth and SBC are struggling. I think AT&T Wireless folks know that they are dealing from a point of strength and would be able to get some serious jack for their business. And that is why they are encouraging an auction.

Cannon Carr of CIBC World Markets told The Daily Deal that a fair cash offer could reach $12 to $13 per share. The M&A daily reports that “A combined Cingular-AT&T Wireless would top Verizon Wireless as the largest U.S. mobile carrier. Legg Mason Inc.estimates the company would have more than 45 million subscribers, close to 30% market share, $30 billion in revenues and Ebitda of about $9 billion.”

Interesting aside: Once this deal gets done, what happens to BellSouth and SBC. Will they merge? Or will they fight over the joint venture called Cingular?

Related Links:
* Battle For AT&T Wireless
* Gulp! Its only the beginning
* Take that Number & Run

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