Case Study 5–4. Cingular Acquires AT&T Wireless in a Record-Setting
Cash Transaction
By entering the bidding at the last moment, Vodafone, an investor in Verizon Wireless,
forced Cingular’s parents, SBC Communications and BellSouth, to pay a 37 percent premium
over their initial bid. By possibly paying too much, Cingular put itself at a major
disadvantage in the U.S. cellular phone market. The merger did not close until October
26, 2004, due to the need to get regulatory and shareholder approvals. This gave Verizon,
the industry leader in terms of operating margins, time to woo away customers from
AT&T Wireless, which was already hemorrhaging a loss of subscribers because of poor
customer service. By paying $11 billion more than its initial bid, Cingular would have
to execute the integration, expected to take at least 18 months, flawlessly to make the
merger pay for its shareholders.
With AT&T Wireless, Cingular would have a combined subscriber base of 46 million,
as compared to Verizon Wireless’s 37.5 million subscribers. Together, Cingular and
Verizon control almost one half of the nation’s 170 million wireless customers. The transaction
gives SBC and BellSouth the opportunity to have a greater stake in the rapidly
expanding wireless industry. Cingular was assuming it would be able to achieve substantial
operating synergies and a reduction in capital outlays by melding AT&T Wireless’s
network into its own. Cingular expected to trim combined capital costs by $600 to
