This is the second major deal Bell Atlantic (NYSE: BEL) has completed since the passage of the Telecommunications Act of 1996. Last year, it acquired NYNEX for $25 billion. Under the terms of the deal, each GTE shareholder will receive 1.22 shares of Bell Atlantic for each GTE share they own. That comes to about $54.90 per GTE share, based Bell Atlantic's closing price yesterday of $45. That's a bit lower than market value for GTE shares, which closed yesterday at $55.75, and could open the door for another offer.
GTE shares fell more than five percent to $52.88 as investors gave a thumbs down to the price of the deal. "This is a takeunder so to speak," said Scott Wright, an analyst with Fahnestock & Co. "Anything below $60 a share is beyond reasonable."
The new company, which will be run jointly by Bell Atlantic CEO Ivan Seidenberg and GTE CEO Charles Lee, will have combined revenues of $53 billion. Lee will serve as chairman and co-CEO of the merged company, and Seidenberg will serve as its president and co-CEO. Beginning on June 30, 2002, Seidenberg will become the sole CEO, with Lee continuing as non-executive chairman until June 30, 2004, when he will be succeeded by Seidenberg. The companies said today they expect to see revenues increase by $2 billion and costs drop by $2 billion because of the synergies of the deal. The new Bell Atlantic-GTE will also have a market capitalization of about $125 billion and annual earnings per share growth of 15 percent.
The new company will have the ability to offer local, long distance, wireless, and data services. It will be the largest wireless and cellular company in the country.
The deal comes a day after AT&T Corp. (NYSE: T) agreed to merge its overseas operations with British Telecom, in a $10 billion joint venture.
"The combined enterprise will have the financial, operational and technological resources to compete effectively against the strategies of AT&T/TCI, SBC/Ameritech, WorldCom/MCI and others, both current and future," Seidenberg said in a press release today.
Bell Atlantic and GTE said today that while there will likely be reductions in management staff, hourly employees should not see job cuts. The new company will have 250,000 employees.
The companies expect the deal to take about a year to close. The Bell Atlantic-GTE combination is likely to face regulator scrutiny. The combined company would have one-third of the domestic local telephone market and Bell Atlantic would gain access to long-distance service.
By law, Baby Bells can not offer long-distance service in their home regions unless they fully open their core local telephone markets to competition. And so far, the Federal Communications Commission has turned down the Bells' efforts to offer long distance.
Larry Dignan contributed to this report.