Merger of At&t and McCaw

Merger of AT&T and McCaw

Agreement :

On 1st Oct 1992, McCaw & AT&T entered into a merger agreement

Price :

The Enterprise Value of McCaw is agreed upon at $ 12.95 bn

The corresponding Price of McCaw’s shares is $ 39.53

Deal Structure :

BT’s shares will bought by AT&T on cash basis

Remaining shares of McCaw will be exchanged for AT&T shares

Exchange Ratio @ $ 43.63 : $ 39.53

McCaw Shareholders will get 0.91 shares of AT&T for every share

Rationale : AT&T has debt capacity and excellent credit rating which it would want to preserve to fund the expansion of the growth of the merged entity. Also, AT&T wants to keep Craig McCaw in the entity as he brings with him great understanding of the business. Hence, an all-share deal. It will also indicate to the market the belief in the growth potential

BT will be happy to exit the at the given price as it is negating its losses and getting cash which it can use to invest in broadband technology at home.

LIN :

AT&T agrees to acquire LIN’s stake if it is below $ 110 in 31st Dec 1995

Rationale : AT&T believes in the attractiveness of LIN’s license areas and is one of the key-driver of the deal. However a valuation above $ 110 will make it unattractive and hence a cap has been kept.

Craig McCaw :

Craig McCaw’s AT&T shares will be locked in for 3 years

Voting Rights in AT&T – 1 vote per share

Rationale : McCaw’s management and performance is dependent on Craig and hence there is a risk of being dependent on one-person. Hence a 3 year lock-in period for Craig’s shares is provided.

Board, Management & Employees

Board – Craig McCaw will get 2 Board seats on AT&T’s Board. Total Board members will be 16

Management – AT&T will keep the key management team of McCaw

Craig McCaw will be designated as President – Cellular Division of AT&T

Employees – There will be certain lay-offs especially in Markets, Sales and Admin. Functions