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AirTouch expands cellular
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January 29, 1998: 11:30 a.m. ET
U.S. West Media agrees on revised terms for purchase of its wireless unit
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NEW YORK (CNNfn) - AirTouch Communications Inc. and U.S. West Media Group have revised the terms of their proposal to merge their domestic cellular operations to create the nation's second-largest wireless provider, the companies said Thursday.
The $5.7-billion transaction comes after AirTouch (which evolved from Pacific Telesis) and U.S. West Media failed to merge the operations in 1997 when a key corporate tax loophole known as the Morris Trust was eliminated.
The merger proposal, which originally dated back to 1994, has since caused confusion among AirTouch's investors, analysts said.
"This has always been a cloud hanging over AirTouch" because it was uncertain how the corporations would resolve the transaction, said Susan Passoni, analyst at Cowen & Co.
Among the key issues that concerned investors was the issue of dilution. Under the previous proposal, AirTouch would have issued about $2.8 billion in stock directly to U.S. West Media's shareholders as well as assuming about $2.2 billion of debt.
Under the new proposal, the company itself rather than shareholders will receive about $1.6 billion in AirTouch dividend-bearing preferred stock and about $2.7 billion in AirTouch common stock. AirTouch also will assume about $1.4 billion of debt.
AirTouch will issue about 60.8 million shares to U.S. West if its stock trades at $45 or higher, for a total deal value of $5.735 billion. If AirTouch trades at $40 or lower, U.S. West will receive about 67.1 million AirTouch shares, for a total value of $5.685 billion.
AirTouch said its per-share dilution, primarily due to the amortization of acquisition intangibles, is expected to peak around 40 cents in 1999 and decline thereafter. The company plans to pursue cost savings to mitigate this dilution.
"What AirTouch has tried to do is get the deal done in a quicker time frame...and minimize the amount of shares" that needs to be issued, Cowen's Passoni said.
Unlike the previous transactions, shareholder approval is not required. In addition, the latest transaction is taxable.
"They were able to get over the tax-free issue without a lot of compromise on price," Passoni said.
As with the previous transactions, AirTouch, upon closing, will own U.S. West NewVector Group and its interest in PCS provider PrimeCo Personal Communications in addition to the U.S. cellular assets. That will boost AirTouch's ownership in PrimeCo to 50 percent from about 25 percent.
AirTouch said it doesn't expect a change in its investment grade credit ratings as a result of the transaction. Closing of the merger, which is expected about the middle of this year, is subject to Hart-Scott-Rodino clearance and other approvals.
-- by staff writer Robert Liu
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