$16bn deal sees SBC acquire AT&T

SBC is to acquire its former parent company AT&T in a $16bn deal that will create the largest telecommunications group in the US.

AT&T's board has accepted a $19.71 per share offer that the companies claim will lead to billions of dollars in efficiency savings.

A statement put out by AT&T and SBC said they expect the proposed merger will yield more than $15bn in savings, net of the cost to achieve them. From 2008 the net annual savings are predicted to be at least $2bn.

Almost half will come from the consolidation of network operations and IT, with a quarter expected from combined sales and support services and 10 to 15 per cent from eliminating duplicate corporate functions.

AT&T's CEO David Dorman will become president of the merged telecoms group and SBC chairman and CEO Edward Whitacre will remain as chairman and CEO of the new company.

Whitacre said the deal is a huge step forward in building a company that will "lead an American communications revolution in the 21st century".

He added that the AT&T brand will also be retained in some form and "will certainly be part of the new company's future".

The deal is expected to be finalised during the first half of next year but is subject to the approval of AT&T shareholders and is likely to undergo lengthy scrutiny by US regulatory body the Federal Communications Commission.

Mike Cransfield, research director at industry analyst group Ovum, said the deal makes sense and shows that in telecoms size does indeed matter.

"We have advocated industry consolidation for some time, and were becoming a little weary of the industry saying it was a good idea in principle but not for them. At last SBC has kick-started the process, and AT&T had the wisdom to recognise that being part of a bigger whole is better than being a struggling independent."

Cransfield said that the story still has a long way to run with plenty of time for someone else to try and derail the deal as well as pressure on other operators to consider merging.