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REUTERS
Past Mergers Put Pressure on AT&T-BellSouth Deal

Jon Van

July 14, 2006

A federal judge's scrutiny of megamergers by two Bell companies that closed last year might put the brakes on this year's proposed takeover of BellSouth Corp. by AT&T Inc., some Wall Street analysts cautioned Thursday.

Judicial review of the takeover of AT&T Corp. last year by SBC Communications Inc. and Verizon Communications Inc.'s acquisition of MCI Corp. has raised questions about whether the Justice Department and the Federal Communications Commission acted in the public interest by approving the two mergers.

U.S. District Judge Emmet Sullivan said he might need more evidence before signing off on the consent decrees that approved last year's mergers.

While few expect Sullivan might try to unwind the mergers, they said his review has already embarrassed the department and the FCC, which will likely cause both agencies to provide greater scrutiny to the proposed AT&T-BellSouth deal.

"The FCC and DOJ are on notice there'll be more public scrutiny of how they handle BellSouth," said Daniel Berninger, an analyst with Tier1 Research.

Jessica Zufolo, a telecom analyst for Medley Global Advisors, said in a report issued Thursday that "FCC and DOJ officials may move more cautiously in examining the BellSouth-AT&T transaction and possibly take more aggressive steps to avoid additional legal complications in federal court. Increased public pressure on all federal agencies to apply a greater scrutiny in mergers may result, regardless of the outcome of this case."

Citing concerns about the court review of last year's mergers, A.G. Edwards downgraded its rating of BellSouth stock to "sell" from "hold."

Brokerage Stifel Nicolaus said in a report that "there could be some complications for AT&T's planned takeover of BellSouth."

Shares of BellSouth slid 92 cents, to $34.34. Shares of AT&T dropped 60 cents, to $26.56. Both trade on the New York Stock Exchange.

"When AT&T announced its intention to buy BellSouth at a premium, BellSouth's share price went up by about 30 percent," said Berninger. "If the deal doesn't go through, that premium evaporates accordingly."

jvan@tribune.com


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