AT&T Corp. shares surged Tuesday on reports it was in talks to merge with SBC Communications Inc., a deal that would thrust AT&T back into the coveted market for local phone services across a swath of the United States.
News of the possible merger pushed AT&T shares up $1.375 to $37.50 on the New York Stock Exchange and buoyed Baby Bells amid speculation a deal could spur a new round of mega-mergers. SBC gained 75 cents and closed at $57.625, also on the NYSE.
A report in the Wall Street Journal said AT&T, the nations leading long distance carrier, and SBC, currently the largest local service provider, are in talks on a merger that would be worth more than $50 billion.
CNBC-TV said Tuesday afternoon it had a source confirming the two telecom carriers were in serious talks but that the two sides were hung up on who would run the combined company.
The financial news channel said a plan was under discussion in which AT&T President John Walter would become chief executive of the combined companies and SBC Chairman and CEO Ed Whitacre would be made non-executive chairman, with a strategic planning role.
Walters, a former publishing industry executive, has been with AT&T for seven months. Whitacre, the widely respected chief executive of SBC since 1990, has worked for SBC and its Southwestern Bell predecessor for 32 years.
The companies declined to comment on both reports.
Many Wall Street and industry analysts said any deal still could get hung up over financial or management structure details or the severe anti-trust scrutiny a merger would likely face from federal and state regulators.
The acquisition of SBC would give AT&T a commanding presence in local markets in the states of California and Texas and extend AT&Ts wireless subscriber base in seven of the top 10 major metropolitan markets in the United States.
AT&T Wireless was the nations largest provider of cellular phone services at the end of 1996, while SBC was neck and neck with Bell Atlantic NYNEX Mobile in a race for second.
Merrill Lynch analyst Dan Reingold said in published remarks that while it is entirely possible the two have held talks, we ascribe a low probability of ultimate approval because of the implications for competition.
I am very, very skeptical ... agreed Daniel Briere, president of TeleChoice, an industry consulting group in Verona, N.J.
Briere said a variety of factors could derail what would be a massive deal in the several years it would take to win regulatory approval and complete the integration of the organizations.
These processes would encumber the two at a time when far-reacgubg changes sweep through the industry and reduce their competiveness against less restricted challengers, he said.
A deal would be complicated by SBCs acquisition in April of Pacific Telesis Group, another regional Bell company. The merger of the two Baby Bells has only begun to get under way.
The regulatory issues alone raised by any effort by AT&T to reassemble even part of the old Bell monopoly system may be enough to scuttle the deal, several analysts said. AT&T would receive special scrutiny because of this history, they agreed.
Its not a question of if they are going to be handcuffed, but whether they will be shackled or put in solitary confinement, Briere said of the restraints regulators would likely put on the merger to allay competitive concerns.
The report of merger talks between AT&T and SBC drew harsh criticism from rivals.
LCI International Inc., a leading supplier of long distance phone and data services, said in a statement that such a deal would violate the spirit of recently passed US laws that are designed to promote competiton in local markets.
Over a year after the Telecom Act has passed, competition in local phone markets is not even close to being a reality, LCI Chairman Brian Thompson said.
Until that monopoly is broken ... mergers between long-distance and local giants ... must not be allowed to go forward, he said.
