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AT&T going local?
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January 8, 1998: 6:34 a.m. ET
$11 billion acquisition of Teleport will allow AT&T to offer local service
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NEW YORK (CNNfn) - AT&T Corp., longing for access to the local telephone market, is reportedly close to an $10-$11 billion deal with Teleport Communications Group Inc.
AT&T is in final talks with Teleport, a Staten Island, N.Y.-based local phone service provider, and a deal could be announced as early as Friday, the Wall Street Journal reported in its Thursday edition.
Teleport is one of a new breed of phone company which stays away from residential local service and instead hunts for the more lucrative business customer market.
Despite having what looks like an effective strategy, the company is so far unprofitable because it is still building its network, an expensive and cumbersome process. Teleport is believed to have had $500 million in revenue in 1997.
What apparently has caught AT&T's eye are the markets served by Teleport. Those markets include attractive urban centers like New York City and Los Angeles. AT&T could use its foothold in those markets to grab larger chunks of business away from the Baby Bells.
The proposed deal values Teleport at $56 per share, less than the company's stock (TCGI) closed at on Wednesday. AT&T may have perceived Teleport's current stock price as slightly inflated since it has seen a run-up because speculation about an acquisition of Teleport has mounted.
The deal will probably end up as fixed swap of AT&T shares, so Teleport shareholders will see the per-share value move along with any changes in AT&T's (T) stock.
Companies like Teleport have become the belles of the ball lately as long distance providers look for ways to enter the local markets, which have thus far proven hard to crack.
Last year, WorldCom Inc. picked up MFS Communications, a Teleport rival, for $14 billion in stock and is currently eyeing another local provider, Brooks Fiber Properties Inc., for more than $2 billion.
The one bump in the road for AT&T's acquisition may be Teleport's recent acquisition of ACC Corp., a long distance phone carrier. One person familiar with the matter described the ACC merger as "tricky," according to the Journal report.
AT&T was also concerned about assuring it would have long-term access to the fiber optic line network that Teleport currently leases from various interests, including the Baby Bells. AT&T is considering a cable alliance and those lines would be key to AT&T's growth in that area. 
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