ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, April 2, 1996 TAG: 9604020068
SECTION: BUSINESS PAGE: B8 EDITION: METRO
DATELINE: NEW YORK
SOURCE: ASSOCIATED PRESS
IT WILL BE THE FIRST merger of former Bell System companies since the 1984 breakup. The companies involved are not the pair most analysts expected.
SBC Communications Inc. and Pacific Telesis Group, two of the Baby Bells created in the Bell System breakup in 1984, on Monday became the first big local phone companies to combine.
SBC will pay $16.7 billion in stock for Pacific Telesis in the biggest deal since the phone business was deregulated in February. It also marks the rising star of SBC, which may someday join the constellation of widely recognized phone names such as AT&T and MCI.
The merger won't mean immediate changes for the two companies' millions of customers in seven states including the two biggest, California and Texas. But it marks a milepost on a road that telecommunication companies of all kinds, driven by the new regulations and technology, are taking toward providing many services - local and long distance phoning, video and data exchange.
``Everybody's been saying this was going to happen for a while, and here we go,'' said Scott Wright, who follows the telecommunication industry for Argus Research in New York.
The deal surprised investors and observers who were expecting the first merger of Baby Bell companies to be Nynex Corp. and Bell Atlantic Corp.
They combined their cellular businesses last year and have since confirmed discussions about a broader relationship. But they had no comment Monday in the wake of the SBC-Pacific Telesis deal.
Together, they will continue to provide the main phone service in California and Texas, develop complementary wireless operations and start a long distance business. Pacific Telesis operates local phone service in California and Nevada. SBC - formerly Southwestern Bell - is in Arkansas, Kansas, Missouri, Oklahoma and Texas.
The deal will take the rest of the year to complete, but it will likely be much longer before customers can tell a difference. For instance, the companies cannot offer residential customers a combined local and long distance service until more competition develops in the local market.
Wall Street analysts expressed some disappointment that the deal won't produce significant cost savings. On the New York Stock Exchange, SBC's stock closed down $2.75 to $49.87 1/2, but Pacific Telesis stock rose $6 to $33.75.
SBC has consistently been the strongest-performing Baby Bell company, largely because of the economic growth of Texas and urban areas in Missouri and a healthy cellular phone operation.
Pacific Telesis, meanwhile, has been the weakest. It was hurt by spinning off its cellular operation two years ago, depriving it of growth to offset lower rates in its local phone business.
Pacific Telesis shareholders will get 0.733 shares of SBC stock for each of their shares. THE BIG MARRIAGES AT A GLANCE
WHAT HAPPENED:
Two big mergers in telecommunications and health care will create gargantuan players in those industries. SBC Communications Inc. is buying Pacific Telesis Group for $16.7 billion in stock. Aetna Life & Casualty Co. is buying U.S. Healthcare Inc. for $8.9 billion.
IMMEDIATE IMPACT:
The SBC-Pacific Telesis merger will create the nation's second-biggest phone company after AT&T Corp., serving millions of customers in seven states. The merged company, to be called SBC, will have more money and power for its planned entry into long-distance phoning.
The Aetna-U.S. Healthcare merger will create the nation's largest medical-benefits company, providing a range of benefits and services reaching 23 million Americans.
LONG-TERM IMPACT:
The new SBC eventually could become as common a name in telecommunications as AT&T and MCI, offering a broad range of newfangled video and data transmission services. The effect on prices consumers pay isn't clear yet.
The new Aetna will push aggressively into low-cost managed health care, where U.S. Healthcare is a leader. The company likely will convert Aetna customers with traditional insurance to the managed-care system. Its sheer size should enable the company to negotiate cheaper prices for hospital and pharmaceutical services. -Associated Press
LENGTH: Medium: 85 linesby CNB