AT&T, Vanguard to merge

The telecommunications giant moves to acquire Vanguard Cellular Systems in a stock and cash deal valued at about $1.5 billion.

2 min read
Telecommunications giant AT&T today announced that it had moved to acquire Vanguard Cellular Systems in a stock and cash deal valued at about $1.5 billion in an effort to significantly increase its cellular reach in the eastern United States.

This deal is AT&T's second major wireless acquisition. In 1994, the company acquired McCaw Cellular Communications, now AT&T Wireless Services.

"Just because we are having this short-term economic crisis around the world at this time, doesn't mean that the longer-term fundamentals of the telecommunications industries are changing," said Jeff Pittsburg, a partner at the investment banking firm of Goldis-Pittsburg Institutional Services. "You want to try to grab a bigger market share and this is just another step in that direction."

The boards of both AT&T and Vanguard approved the transaction and expect the merger to close in the first quarter of 1999. The merger is subject to the approval of Vanguard's shareholders and federal regulators. The deal is also contingent upon certain other conditions, according to the companies.

The deal, valued at $1.5 billion, includes about $600 million in debt. Under the terms of the agreement, each Vanguard Cellular share would be exchanged, at each shareholders option, for either $23 cash or 0.3987 of an AT&T share, subject to the limitation that the overall consideration will consist of 50 percent cash and 50 percent AT&T stock.

"This merger is a natural," said Dan Hesse, president of AT&T Wireless Services, in a statement. "With Vanguard Cellular, AT&T can significantly increase its footprint in the eastern U.S., providing additional service offers and availability to our customers."

Vanguard clients are mainly in rural and suburban areas.

"We have a movement where the whole world is going to be crisscrossed with cell phones," Pittsburg said. "You have to keep looking for opportunities to expand your markets."

With the deal, Vanguard Cellular's nearly 625,000 customers also will become part of one of the nation's largest, and "most advanced digital network," Hesse said.

AT&T serves more than 90 million customers, including consumers, businesses, and government. The company has annual revenues of more than $52 billion and 119,000 employees. AT&T operates in more than 200 countries and territories around the world.

Vanguard Cellular Systems, headquartered in Greensboro, North Carolina, is one of the largest independent operators of cellular telephone systems in the United States with approximately 6.8 million POPs, and provides service under the Cellular One brand name.

Shares of AT&T fell 1.81 percent today, to 57.56. The stock has traded as high as 68.5 and as low as 43 during the past 52 weeks.

Vanguard's stock shot up 7.23 percent to 21.31 on news of the deal. The stock has traded as high as 25.25 and as low as 11.38 during the past 52 weeks.