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AIRTOUCH REPORTS MERGER WITH CELLULAR COMMUNICATIONS INC.

NEW YORK-The urge to merge struck again with an Easter weekend announcement that AirTouch Communications Inc. would pay about $1.65 billion to buy the 60 percent of Cellular Communications Inc. it doesn’t already own.

The proposed AirTouch takeover of CCI follows closely on the heels of the April 1 announcement that SBC Communications Inc. planned to acquire Pacific Telesis Group. If consummated, the SBC-PacTel union would create a strong, nationwide competitor to AirTouch, which is one of the nation’s largest wireless telecommunications companies.

With the acquisition of CCI, headquartered in New York, San Francisco-based AirTouch, which now has about 2.6 million customers in the United States, would add about 5 million proportionate pops, bringing its domestic cellular portfolio to nearly 43 million pops.

The planned transaction would culminate a process that started with a late-1990 agreement between AirTouch and CCI. Each company contributed its cellular properties in Michigan and Ohio to an equally owned joint venture known as New Par. Under that agreement, AirTouch acquired a 40 percent equity position in CCI, at a cost of more than $700 million, along with the right to acquire the rest of CCI based on a series of appraisals scheduled to begin in August.

Instead, the merger is expected to close by early August, provided it is approved by CCI stockholders and telecommunications regulators, including the Federal Communications Commission. The boards of directors of both companies already have voted their approval.

Besides calling for a lengthy appraisal process, the original merger agreement, “was all cash and fully taxable, leaving us minimal financial flexibility,” said Arun Sarin, vice chairman of AirTouch. As now structured, each share of CCI stock will be converted into the right to receive either approximately $55 in cash or two classes of convertible stock or a combination of cash and stock. No more than 28 percent of the total company purchase price can be in cash. No more than $500 million can be in the class of securities known as mandatory convertible stock.

“CCI’s stockholders will have the opportunity to become AirTouch shareholders and participate in the rapid growth of AirTouch’s domestic and international wireless ventures,” said George Blumenthal, CCI chairman.

AirTouch, which now has about $900 million of outstanding debt, also would assume responsibility for $217 million of outstanding CCI convertible subordinated debentures. Due to the merger agreement, both Moody’s Investors Service and Standard & Poor’s Corp. have announced a review of this CCI debt with a view toward possible upgrade. Moody’s gives AirTouch debt a “positive rating outlook,” while S&P views it as “stable.”

Blumenthal and AirTouch Chairman Sam Ginn said the new agreement also will help the combined companies work faster together to meet the pending challenge of personal communications services.

“Acquiring the remainder of CCI now lets us further integrate these key properties into our operations before new competition enters the market, giving us immediate advantages from common systems and a single brand,” Ginn said.

As part of the transition, New Par customers, who now receive service under the Cellular One brand name, gradually will be converted to the AirTouch brand name, officials of both companies said.

Cellular Communications’ primary business interest is its 50 percent ownership position in the New Par joint venture, which is the leading cellular services provider in Ohio and Michigan. It has one million subscribers and covers 16 million pops.

“CCI’s impressive operations with strong growth, excellent cash flow and customer retention will add to our overall strong operating performance and contribute to our continued growth,” Ginn said.

Under the merger agreement, the approximately 2,000 New Par employees in Ohio and Michigan will continue working for AirTouch in these states. The CCI board of directors will dissolve itself when the merger becomes effective, said William B. Ginsberg, CCI president and chief executive officer. New York City-based CCI staff, including board members, will continue to work for the other three independent companies that will remain autonomous after CCI merges with AirTouch, he said. These companies are Cellular Communications of Puerto Rico Inc., Cellular Communications International Inc. and International CableTel Inc.

CCI also has an 18 percent interest in Celsat America Inc., with an option to acquire 7 percent more. Celsat, based in Torrance, Calif., has sought Federal Communications Commission approval for a pioneer’s preference license to launch in 1999 a geosynchronous satellite capable of covering the entire United States. David Otten, Celsat founder and CEO, has said that CCI would help raise public capital market financing for the system, which is estimated to cost $450 million.

When asked about the merger’s effect, if any, on Celsat, Otten said, “it’s too soon to comment.”

Ginsberg said that discussions are under way regarding alternatives for CCI’s stake in Celsat. “We bought into Celsat because we think it’s an interesting company, but it was not a major aspect of the AirTouch-Cellular Communications merger discussions,” he said.

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