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AirTouch to Buy US West Wireless Unit

Telecom: Deal is worth $5.7 billion in stock and debt. Previous joint pact means customers will see little change.


Six months after calling off another merger agreement, AirTouch Communications said Thursday it will acquire the U.S. wireless business of US West Media Group for $5.7 billion in stock and debt.

The deal will boost AirTouch's customer base by more than 2.2 million to 6.2 million subscribers of its cellular and personal communication services, or PCS, second only to AT&T. US West Media Group will be able to exit the domestic wireless business and focus on providing high-capacity data-network services over cable and wireless services overseas.

Customers of both companies are unlikely to notice any difference, since the two have operated their U.S. cellular businesses jointly since 1994. AirTouch and US West Media Group had tried to formally merge in April in a $5-billion, tax-free stock swap known as a Morris Trust transaction. That deal was called off in August after Congress closed that tax loophole and declined to give the two companies an exemption.

The new deal calls for AirTouch to give US West Media Group about $1.6 billion in dividend-bearing preferred stock and about $2.7 billion in common stock, and to assume $1.4 billion in US West Media Group debt. The exact number of shares involved will depend on the price of AirTouch common stock in the 30 days before the deal is closed in mid-1998.

"With this acquisition, AirTouch casts a strong vote of confidence in our industry's future and reinforces our commitment to wireless," said Sam Ginn, chairman and chief executive of San Francisco-based AirTouch.

Chuck Lillis, president and chief executive of US West Media Group, said the deal will let his company "focus our resources on our core businesses" without a major tax bill. The Englewood, Colo.-based firm will be able to delay paying taxes until it sells its AirTouch shares.

Analysts said the new structure is beneficial for both sides. Because AirTouch's stock has risen 80% since the first deal was announced, AirTouch can afford to increase the value of the deal while issuing fewer shares.

US West Media Group--which will change its name this fall to MediaOne Group, the brand name it uses for its cable business--will get an additional $700 million for its domestic wireless properties and still have flexibility to leverage the AirTouch stock to help finance other ventures, said David Freedman, a managing director at Bear, Stearns & Co. in New York.

"This deal is a win-win-win," said David Otto, a telecommunications analyst with Edward Jones in St. Louis. "AirTouch will get final and full control over those [wireless] properties; Media Group can start focusing on cable TV, and customers are going to win because both companies will be much more in tune with the products that they're selling."

On the New York Stock Exchange Thursday, shares in US West Media Group rose $1.81 to close at $29, while AirTouch stock fell 69 cents to close at $44.25. When the original deal was announced in April, AirTouch was trading at $24.50 a share.

The two companies joined forces in July 1994 to become a national player in the wireless business. US West's cellular operation, NewVector Group, has been using the AirTouch Cellular brand name for more than a year. The companies also share a 50% stake in PrimeCo Personal Communications, which offers digital PCS services. AirTouch will now be half-owner of PrimeCo, which is also half-owned by Bell Atlantic.

US West Media Group still serves 1.5 million wireless subscribers in Europe and Asia, and analysts speculate that in the future, the company might sell that business to AirTouch as well.

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