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Baby Bells Agree To Biggest Telecommunications Merger Ever

April 22, 1996 GMT

NEW YORK (AP) _ Bell Atlantic and Nynex agreed to the largest merger in telecommunications, a $23 billion deal that creates a colossus connecting 37 million phone lines from Maine to Virginia. Some 3,000 jobs will be eliminated, the company said today.

Both companies’ boards approved the merger over the weekend. It will create the nation’s second-biggest phone company behind AT&T Corp. and will offer vastly simplified service to businesses and consumers in the Northeast, the nation’s most important regional phone market.

The merger will also rank as the second-biggest in U.S. history behind the $25 billion purchase of RJR Nabisco by the takeover firm Kohlberg Kravis Roberts & Co. in 1989.

``This is the most natural partnership in the world,″ Raymond Smith, chairman and chief executive of Bell Atlantic, said in a statement. ``We have worked well together for years.″

Bell Atlantic, as the combined company will be known, will employ 133,000 workers, will be based in New York City and will have combined revenue of $27.8 billion, base on 1995 figures.

The two Baby Bells said 3,000 jobs will be lost in the combination, mostly corporate and administrative positions. Both companies are already in the midst of major cost-cutting efforts.

As a stock swap transaction, shareholders of both companies will exchange their shares for stock in the new Bell Atlantic. Current Bell Atlantic shareholders will get 1.302 shares in the new company for each share they own. Nynex shareholders will swap on a one-for-one basis.

Nynex’s stock was worth about $22.7 billion as of Friday’s market close. Since Bell Atlantic shareholders will control a majority of the new company, Nynex’s stock value represents the merger’s value.

The merged company will serve all or part of 13 states and the District of Columbia. The announcement comes just three weeks after the first-ever combination of regional Bell companies and follows by two months a sweeping deregulation of the telecommunications industry.

``There’s a natural proclivity for those two Bells to get together,″ said Gary Miller, president of Aragon Consulting Group Inc., which specializes in telecommunications.

As a single phone company, Bell Atlantic and Nynex will offer one-stop service to businesses that operate in their adjacent regions. For example, a Boston company with a branch in Pittsburgh must now deal with the two Baby Bells separately and a third company for long-distance.


A combined Bell Atlantic-Nynex also will be better able to match price discounts by long-distance companies such as AT&T and cable TV providers, which are now able to enter the local phone business.

``Innovative marketing, quality of service and continuing the development of a modern network will be our top priorities,″ Ivan Seidenberg, chairman and chief executive of Nynex, said in a statement.

Smith, 58 will run the new Bell Atlantic company at first, serving as chairman and chief executive officer. Seidenberg, 49, will be vice chairman, will become CEO about one year after the merger is completed and then will be chairman when Smith retires.

The new Bell Atlantic expects see total savings of up to $900 million a year after the merger is complete. Merger costs will result in a $500 million charge against earnings in the first year after completion and up to $400 million more over the next two years.

Regulatory approval from state and federal agencies is required before the merger can be completed. Shareholder approval also is necessary and special meetings will be held later this year.

For consumers, the merger should bring little change in local calling rates, but there could be improved service as Bell Atlantic upgrades the less-advanced operations of Nynex.

Both companies have been talking for months, but a jolt to accelerate the process came April 1, when SBC Communications Inc. agreed to buy Pacific Telesis Group for $16.7 billion. That deal united the phone companies serving the nation’s two most populous states, California and Texas, and five others.

Together, the two mergers will reduce the number of Baby Bells to five from seven. The others are U S West Inc., Ameritech Corp. and BellSouth Corp.

The Baby Bells were formed by the 1984 breakup of AT&T, which separated long-distance and local telephone service. Little more than a decade later, they are combining and jumping into new businesses.

Such mergers could have come previously, but the companies waited until passage of the telecommunications deregulation bill in February. It provided a clearer sense of how they would be allowed into long-distance, TV and other previously restricted businesses.

Word of the agreement came out Sunday and today’s official announcement preceded the stock market’s opening. In New York Stock Exchange trading Friday, Bell Atlantic closed at $65 a share and Nynex finished at $53.