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Bell Atlantic buying GTE
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July 28, 1998: 2:00 p.m. ET
Companies to combine in $52.8 billion stock swap; deal likely to face gov't hurdles
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NEW YORK (CNNfn) - Bell Atlantic Corp. said Tuesday it is buying GTE Corp. in an all-stock deal valued at $52.8 billion, bringing together Bell Atlantic's local and wireless phone service with GTE's local, long-distance, wireless and Internet businesses.
Both companies' boards have approved the acquisition, under which GTE shareholders will receive 1.22 Bell Atlantic shares for each GTE share. Bell Atlantic's Monday closing price of $45 puts the value of the deal at $52.8 billion.
Charles Lee, GTE's chief executive officer, said the transaction reflects GTE's "fierce determination to be a growth company," adding that the newly merged company will build upon GTE's and Bell Atlantic's "complementary strengths."
Investors, however, reacted coolly to the deal, sending GTE (GTE) shares down 3-7/8 to 51-7/8 in mid-afternoon trading. Bell Atlantic (BEL) shares fell 1-3/8 to 43-5/8.
"The deal makes sense from Bell Atlantic's perspective," said Anthony Ferrugia, an analyst at A.G. Edwards. "They're picking up data assets, they're picking up long-distance business - two very strategic assets."
Analysts were not so sure, however, that the deal was quite as positive for GTE because the acquisition values GTE at $55 a share, slightly less than its Monday closing price.
Eric Melloul, telecommunications analyst at Argus Research, told CNNfn the deal represents a bargain for Bell Atlantic, which could open the door for another bidder.
"There is no premium being offered for GTE," Melloul said. "I think someone may come in another month or two [with a higher bid]. I think GTE is worth about $60 to $65 a share."
Both Melloul and Ferrugia cited BellSouth as the leading candidate to step in and make a competing bid for GTE.
A GTE spokeswoman said the deal comes with a breakup fee of up to $2 billion if either company decides to pursue another merger opportunity, which could be another factor involved in Wall Street's negative reaction to the acquisition.
Lee, however, defended the purchase price as a "merger of equals in every way," adding that the newly combined company expects to increase its earnings per share in its first full year following completion of the merger.
"This transaction gets us both where we want to be, but it gets us there faster," Lee said.
Another merger, another FCC inquiry
The companies said they will offer bundled telecommunications services to customers, meaning local, long-distance, cellular and Internet services could be combined on one bill.
"Bundling of telecom services is one of the biggest trends today," said GTE's Lee. "We have an unmatched capability of providing those services to customers … and we can do it at a better cost."
But the deal most likely will come under intense regulatory scrutiny. The Telecommunications Act of 1996 prohibits the Baby Bells from selling long-distance service until they can demonstrate that they have opened their local networks to potential competitors.
"I look forward to reviewing this merger when it comes before us," FCC Chairman William Kennard said in a statement. "I hope the parties will demonstrate how this merger advances the pro-competitive thrust of the Telecommunications Act."
Bell Atlantic has yet to pass this litmus test on its own, although GTE already offers long-distance service outside Bell Atlantic's region.
"Both companies are working on rolling out high-speed access to homes," said Ivan Seidenberg, Bell Atlantic CEO. "By combining our resources, we can drive prices down."
Nonetheless, Melloul said federal regulators likely will seek some kind of concession from the companies.
"If this deal is allowed, they will probably have to operate the long-distance company independently," he said.
Ferrugia, however, said this type of deal typically results in lower rates for consumers in the long run. He told CNNfn that while the telecommunications industry is narrowing to a few big players, the days of a single company controlling the industry are over. [154K WAV] or [154K AIFF]
Wireless connection
The government also is likely to look at the companies' wireless offerings. Together, Bell Atlantic and GTE serve 10.6 million wireless customers in the United States, with much of that service overlapping in several states.
Bell Atlantic is also part of the PrimeCo Personal Communications L.P. wireless alliance, which is building a wireless service in other areas that overlap with GTE cellular service.
Lee and Seidenberg declined to comment on exactly how the companies will handle overlap issues in their wireless businesses.
Lee will become chairman and co-chief executive of the merged company, while Seidenberg will be co-chief executive and president.
The new entity, which the companies said has a combined market capitalization of $125 billion, will be based in New York. Executives said they have not determined a name for the new company.
The merged company's board of directors will be divided equally between Bell Atlantic and GTE board members.
The companies expect the transaction to be completed in 12 to 18 months.
By acquiring GTE, Bell Atlantic secures its place as the nation's largest local phone company, serving more than 63 million customers. Stamford, Conn.-based GTE is the third-largest local phone service provider in the United States, behind Bell Atlantic and SBC Communications Inc. (SBC).
SBC is awaiting government approval of its own planned merger with Ameritech Corp. (AIT).
Many analysts believe the telecommunications field soon will be dominated by only a handful of companies as the recent wave of mergers continues.
Last fall, GTE tried to acquire MCI Communications Corp. (MCIC), but it was outbid by WorldCom Inc. (WCOM). That deal currently is awaiting federal approval.
Bell Atlantic and GTE employ more than 250,000 people combined. While noting that a "small percentage" of management positions may be eliminated, the companies said they do not expect significant job losses and that employment levels may increase "as the combined enterprise grows." 
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Bell Atlantic
GTE
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