In by far the biggest takeover bid ever in the young cellular telephone industry, McCaw Cellular Communications Tuesday offered to buy LIN Broadcasting Corp. for $6 billion in a deal that would create a national communications giant.
McCaw, a Kirkland, Wash., company that is already the nation's largest independent cellular phone firm, proposed the $120-a-share buyout in a letter sent to LIN headquarters in New York. McCaw, which currently holds a 9.8% stake in LIN, said Tuesday that it would "promptly commence a cash tender offer" for the LIN stock it doesn't already own.
LIN said it will "study the offer carefully and act in the best interests of its shareholders." A spokesman said LIN would have no further immediate comment.
The proposed merger would team companies that have minority interests in Los Angeles Cellular Telephone, one of the two cellular companies serving the city. LIN owns 35% of the cellular phone concern, while McCaw has a 5% stake in the BellSouth unit that holds the remaining 65% of the venture.
The proposed offer by far exceeds what until now has been the biggest deal in the industry, the $1.5 billion British Telecommunications invested this year to acquire a 22% stake in McCaw, noted William Maguire, editor of Radio Communications Report, a trade publication. The industry's next-biggest transaction was BellSouth's $710-million acquisition in April of Mobile Communications Corp. of America, he said.
If completed, a McCaw-LIN merger would create a company with annual revenue of more than $500 million.
McCaw, which operates cellular telephone systems in 127 markets across the country, had revenue of about $310.8 million in 1988. Along with its indirect interest in Los Angeles Cellular, it has holdings in the San Francisco-San Jose, Miami, Seattle, Portland, Ore., Denver and Minneapolis markets.
Tuesday's offer was made public after the close of stock market trading. In over-the-counter trading Tuesday, LIN closed at $103.50, up $1.25, and McCaw closed at $43.25, down 25 cents.
The stock of LIN had surged last month after the company announced that it would spin off to shareholders its group of seven television stations.
At the time, analysts speculated that LIN's move was designed to make the company a more attractive takeover candidate since former Bell System phone companies are prohibited from owning broadcast outlets. However, company officials claimed that the move was designed to boost the market value of its cellular business as an independent entity.
LIN's cellular business accounted for 30% of its 1988 revenue and 21% of its overall profit. It is a partner in cellular businesses in Houston, Dallas/Fort Worth, New York, Philadelphia and Los Angeles. As of March 31, cellular operations in which LIN has an interest had 260,000 customers.
The market for cellular phones has grown from 100,000 customers in 1984 to under 2 million users in 1988, according to industry estimates. Revenues for 1988 were estimated at about $2 billion.
Many analysts expect the market to continue booming as costs for the telephones fall and transmission capacity grows. Cellular phone prices have dropped during the past few years from a high of more than $2,000 to less than $700.
The McCaw family has been in the telephone business since the late 1930s. The family formed McCaw Cellular in 1982 as a private concern and went public in 1987.