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Cingular wins AWS properties after Vodafone bows out

NEW YORK-Following a long weekend of intense bidding, Cingular Wireless L.L.C. acquired rival AT&T Wireless Services Inc. for $41 billion. Cingular said it expects the deal, which has to be approved by federal regulatory authorities and AWS shareholders, to close by the end of the year, creating the nation’s largest wireless operator with more than 46 million subscribers at the end of last year.

The offer provides AWS shareholders with $15 in cash per common share and was higher than most industry analysts anticipated. Cingular topped a reported $38 billion bid from Vodafone Group plc.

“Wireless communications is one of the most significant growth drivers in the telecommunications industry, and with the acquisition of AT&T Wireless, we believe no other company will be better positioned than Cingular to grow with the market’s continued expansion,” said Stan Sigman, president and chief executive officer of Cingular. “The new company will have a strong foundation to begin rolling out exciting new services and data applications that enrich the end-user experience.”

Sigman is expected to remain as head of the organization, which is expected to retain the Cingular brand name and ditch the AT&T Wireless moniker. Cingular said it expects the company to generate more than $1 billion in operating expenses and capital expenditure savings in 2006 and in excess of $2 billion in annual savings beginning in 2007.

Cingular’s parent companies SBC Communications Inc. and BellSouth Corp. have committed funding to complete the all-cash deal with SBC contributing $25 billion and BellSouth $16 billion maintaining the 60/40 ownership in Cingular, with both companies expecting some dilution to GAAP and cash earnings per share in 2005 and 2006.

AWS chairman and CEO John Zeglis, who is expected to step down once the deal is completed, said the sale was a “triple win for AT&T Wireless shareowners, customers and employees.”

AWS’ stock was up more than 15 percent in early Tuesday trading at around $14 per share and has increased more than 70 percent since the beginning of the year. Customers are expected to benefit from the increased footprint and services from the merger.

Analysts noted they expected the merged company likely will have to divest some of its wireless properties. Analysts at Raymond James & Associates forecast that the new Cingular will have to shed licenses covering as many as 20 million potential customers and 3 million current customers, which could be up for sale this year.

Vodafone, which risked its 45-percent stake in Verizon Wireless in trying to acquire AWS, said it withdrew from the auction “when it concluded that it was no longer in its shareholder’s best interests to continue discussions,” and that it remained committed to its existing relationship with Verizon Wireless. Analysts noted the failure to acquire controlling interest of an U.S. carrier probably will result in Vodafone increasing its pursuit of French operator SFR.

AWS minority shareholder NTT DoCoMo Inc., which holds an approximate 16-percent stake in the U.S. carrier, said it expects the deal to have a “considerable effect on the relationship between DoCoMo and AT&T Wireless, as it would result in all of its shares in AT&T Wireless being converted into cash.” The Japanese telecom giant, which initially invested $10 billion for its 16-percent stake in AWS in late 2000, added it was reviewing its options in an effort to maximize shareholder value.

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