AirTouch Communications Inc. and U S West Media Group announced a new $5.7 billion definitive agreement to merge U S West Media’s U.S. cellular and personal communications services interests into AirTouch.
The agreement replaces a 1994 multiphased joint venture agreement, under which Media Group was to merge its cellular and PCS interests slowly into AirTouch. AirTouch would have owned about 74 percent of the partnership and Media Group would have held a 26-percent stake. This new agreement allows AirTouch to own all of Media Group’s U.S. cellular business, U S West NewVector Group, and the company’s 25-percent interest in PCS operator PrimeCo Personal Communications L.P. This means AirTouch will own about 50 percent of PrimeCo. Bell Atlantic Corp. owns the other half. Media Group will retain ownership of its international cellular business.
The two attempted a similar ownership agreement last April that called for AirTouch to assume $2.2 billion in debt and distribute stock to Media Group shareholders tax free. The deal hinged on the so-called Morris Trust tax code provision, which allowed tax-free spinoffs. That piece of legislation was effectively repealed in the balanced budget bill the day before the two companies made their announcement. The companies’ lobbying efforts failed to get any transitional language inserted into the final bill, forcing them to revert back to their original 1994 agreement.
Last week’s agreement calls for Media Group to receive about $1.6 billion in AirTouch dividend-bearing preferred stock and about $2.7 billion in AirTouch common stock. Also, Media Group will transfer about $1.4 billion of debt to AirTouch. The number of AirTouch common shares issued will vary depending on the trading price of AirTouch common stock during a 30-day period prior to closing. AirTouch will issue about 60.8 million shares to Media Group if AirTouch is trading at $45 or higher, for a total deal value of $5.74 billion. If AirTouch is trading at $40 or lower, Media Group will receive about 67.1 million AirTouch shares, for a total deal value of $5.69 billion.
“With this acquisition, AirTouch casts a strong vote of confidence in our industry’s future and reinforces our commitment to wireless,” said Sam Ginn, AirTouch chairman and chief executive officer. “By adding the U.S. wireless interests of U S West Media Group, we’ll significantly bolster our operating scale and expand our footprint. And we’ll do so by taking on more debt and issuing preferred stock, thereby minimizing the number of shares of AirTouch common stock issued.”
With this acquisition, AirTouch said it will rank as the second-largest wireless provider in the United States, based on third-quarter 1997 proportionate customers. It will add to its proportionate U.S. wireless portfolio 2.2 million cellular customers in 12 states.
Lehman Brothers in New York reaffirmed its 1-Buy rating on AirTouch after the announcement Thursday. It said the agreement clarified uncertainty surrounding the original deal. Previously, AirTouch had to rely on an appraisal process rather than negotiated terms.
The telecom carriers expect to complete the merger by mid-year.
