Lin, BellSouth to Merge Domestic Cellular Concerns
Lin Broadcasting and BellSouth Corp. said Monday that they have agreed to merge their domestic cellular telephone operations, a move that would solidify the two companies’ strong presence in the nation’s most important cellular telephone markets, including Los Angeles.
New York-based Lin, maneuvering to thwart a takeover bid by McCaw Cellular Communications, also said it would go ahead with plans to spin off seven television stations to a new company owned by current Lin holders. In addition, Lin said it would pay a special $20-a-share dividend to all its stockholders.
Analysts said the proposed merger, which requires the approval of Lin’s shareholders and various regulatory agencies, is the strongest reason yet for McCaw to raise its $5.8-billion offer for Lin. McCaw, the nation’s biggest independent cellular phone firm, had been hoping to expand rapidly by acquiring Lin and gaining its market share in some of the nation’s most lucrative cellular markets.
In teaming with BellSouth, Lin’s management has chosen a merger partner with the “potential to do the most damage” to McCaw’s grand strategy of building a nationwide independent cellular company, said Thomas W. Friedberg, an analyst with Piper Jaffray & Hopwood. A successful merger would “effectively frustrate McCaw’s strategy for building in the Sun Belt,” he said.
Kirkland, Wash.-based McCaw said it would not comment until it sees the details of the merger proposal to be filed with the Federal Communications Commission and the Securities and Exchange Commission.
McCaw has been in hot pursuit of Lin since June, apparently primarily to gain Lin’s share of cellular telephone companies operating in Los Angeles, New York, Philadelphia and Dallas. Although the industry leader, McCaw has most of its franchises in relatively small cities.
McCaw Slightly Larger
Atlanta-based BellSouth also has significant interests in many of the strongest cellular markets. It is Lin’s partner in Los Angeles Cellular telephone, holding a 60% interest while Lin has 35%, and in one of the two cellular franchises in Houston, where BellSouth owns 44% of the operation and Lin owns the remaining 56%. BellSouth also has a 79% interest in an Atlanta cellular franchise and total ownership of a South Florida system serving Miami, Ft. Lauderdale and West Palm Beach.
The proposed Lin-BellSouth cellular company would have 46 million pops--an industry measure for the number of potential customers--plus possibly an additional 2 million that would be gained from expected approval of licenses in rural service areas. McCaw is slightly larger, with 50 million pops.
(Pops are calculated by multiplying the population in a cellular market times the percent ownership a company has in a cellular enterprise there. For example, if a company had a 50% ownership in a company serving a market of 1 million people, it would have half a million pops.)
Together, Lin and BellSouth said they would serve more than 40 cellular markets, including more than 64% of the population in the nation’s top 10 cellular markets.
“This transaction creates the premier cellular telephone company and brings significant benefits to the stockholders of both BellSouth and Lin,” Lin Chairman Donald O. Pels and BellSouth Enterprises President William O. McCoy said in a joint statement.
In exchange for its domestic cellular properties, BellSouth would receive 50% of Lin’s common stock after the merger. Depending on how the deal works out, BellSouth also could receive some preferred stock in Lin. The companies did not place a dollar value on the deal, and analysts’ estimates varied widely.
BellSouth’s 50% interest assures the company “cellular industry leadership position” without affecting its balance sheet, McCoy said. “This new company clearly will be the powerhouse of the cellular industry,” he said.
As proposed, Pels would be chairman, president and chief executive of the new cellular company. Earle Mauldin, BellSouth Enterprises’ group vice president for mobile systems, would be executive vice president.
Would Borrow Money
Under its spinoff plan, which was announced previously, Lin would unload all of its broadcast operations. The company owns NBC affiliate television stations serving Dallas/Ft. Worth; Austin, Tex.; Grand Rapids, Mich., and Hampton Roads, Va. It also owns CBS affiliates in Indianapolis and Ft. Wayne, Ind., and an ABC affiliate station in Decatur, Ill.
To finance its proposed special dividend to shareholders, Lin said it would need to borrow money. Analysts said Lin has some $250 million to $300 million in cash that it likely would use to pay the dividend and that it would need to borrow an additional $700 million. Nevertheless, Lin said its debt load would remain relatively low, enabling it to expand its cellular interests further.
CELLULAR PHONE MERGER PLAN
Combined ownership of BellSouth and Lin Broadcasting in companies in 10 leading cellular markets under merger plan.
Market: % owned
Houston: 100
S. Florida*: 100
New Orleans: 100
LOS ANGELES: 95
Atlanta: 79
Dallas: 60
Philadelphia: 51
Milwaukee: 50
Indianapolis: 50
New York: 45
* Includes Miami, Ft. Lauderdale and West Palm Beach
Source: Associated Press
Los Angeles Times
CELLULAR PHONE COMPANIESLos Angeles Times
Top 10 companies and the number of potential customers in their service areas.(In millions)
McCaw Cellular Comm.: 52.0 Pacific Telesis Group: 29.1 BellSouth: 28.0 Southwestern Bell: 27.2 GTE: 21.7 Bell Atlantic: 19.0 Lin Broadcasting: 18.0 Ameritech: 17.0 Nynex: 15.0 U S West: 14.0 Population figures are prorated to reflect the percentage of ownership in various markets. Highlighted companies are planning to merge.
Los Angeles Times
