Causes of the AT&T-BellSouth Takeover - Essay Example

Consequently, the revenues of the company were falling, stock process declining and incurred huge cost price. Things looked even bleaker given the coming of internet phone calls and more serious competition from cable and wireless companies. AT&T, which is a holding company agreed to take-over BellSouth as a strategy to position it as a company committed in enhancing convergence, progressive innovation and competition in the communication and entertainment industry (Reardon, 2006). The take-over guaranteed AT&T Inc the rights to own and manage Cingular Wireless which is a leading provider of wireless data and voice services (Reardon, 2006).

Moreover, AT&T would have the exclusive rights on ownership of YellowPages.Com which offer Yellow Pages and local search site. Reardon (2006) asserts that the AT&T-BellSouth takeover would help AT&T company cut down its labor by 10,000 jobs between 2007 and 2009. AT&T also hoped to increase its revenues and customer to about $ 130 billion in sales and 70 million customers by increasing its market niche from the previously 13 states to 22 states following the acquisition of the 9 southeast states previously served by BellSouth.

Basis for the Final Agreed Price Before a company can be taken-over by another or in the case of merger, it is important that the value of the company is determined (Gould and Leisner, 2009). The value of the company is its net worth and is used to determine the final price to be paid out during acquisition. Whitney (2012) describes seven things that should be considered in valuing a business during a merger and acquisition of resources. He argues that the value of the business consists of not only the price but also includes the associated terms and the deal structure.

He further explains that there exist different values of the business due to different operation assumptions, terms of payment and deal structure and not because of use of different valuation methods. Whitney (2012) describes future performance, asset type, exit strategy, cash flow and deal structure as some of the determinants of business value. In 2006, AT&T Inc resolved to merger with a fellow telephone company BellSouth in a stock transaction worth $ 67 billion (Reardon, 2006). In the proposal for the merger, AT&T shareholders were to receive 1.

325 shares of AT&T common stock for every BellSouth Common share. Reardon (2006) explains that under these terms, the deal would represent a premium of 17.9 percent over the closing stock price on Friday, 3rd March, 2006. Each of BellSouth common shares would be quote eat 37.09. However, Public Service Commission, (2006) explains that merger was subject to approval by the regulatory authorities and shareholders from both companies and was to be completed within six months. On December, 29th 2006, the takeover of BellSouth by AT&T was approved by Federal Communications Commission after the two companies settled on extra concessions that had been demanded by two Democrats members of the agency.

The takeover price was agreed to be $ 85 billion as reported (Bartash, 2006). The take-over was approved four members while one abstained from voting. In determining the final price, a ratio of the closing prices of the stock of each company was calculated after which BellSouth shareholders were allocated the