AT&T-McCaw merger plan blocked on antitrust grounds

April 06, 1994|By New York Times News Service

WASHINGTON -- A federal judge yesterday blocked AT&T's $12.6 billion deal to buy the nation's biggest cellular-telephone company, saying that it would violate the antitrust ruling that broke up the old Bell system a decade ago.

The decision may not necessarily derail AT&T's proposed purchase of McCaw Cellular Communications, but it throws a significant obstacle into the merger plans and is almost certain to delay the merger for at least several months.

The decision was issued yesterday by U.S. District Judge Harold H. Greene, who oversaw the Bell system's breakup in 1984 and continues to enforce the antitrust agreement governing the AT&T and the seven regional Bell companies spun off from it.

Judge Greene said yesterday that the AT&T-McCaw deal raised the specter of re-creating the monolithic Bell system because several of McCaw's cellular networks are partly owned by one or another of the regional Bells.

His ruling could force AT&T to restructure the deal by selling several valuable cellular-phone systems -- possibly including ones in Los Angeles and Houston -- that it had expected to acquire from McCaw.

When the two companies announced their agreement to merge last summer, the news excited the telecommunications industry because it meant that the nation's biggest long-distance carrier was acquiring the biggest and perhaps most innovative company in the wireless telephone industry. McCaw has 3 million cellular customers and owns systems in 105 markets.

Yesterday's ruling turned on a technical objection that had been raised by BellSouth Corp., which owns 60 percent of the Los Angeles franchise and slightly less than 50 percent of the Houston system.

McCaw is a minority owner in both systems, through its ownership of 52 percent of Lin Broadcasting.

Judge Greene said that AT&T would need a waiver from the antitrust ground rules because otherwise the merger would run afoul of a provision that prohibits AT&T from reacquiring assets of the old Bell system.

The issue is more treacherous than it appears. The problem is that McCaw has an agreement to either purchase all the remaining shares of Lin in 1995 or sell the shares it owns. This all-or-nothing choice makes it difficult to spin off the disputed properties without unraveling the Lin deal.

While leaving room for AT&T and McCaw to come back with a more persuasive case, the judge said the proposed merger raised serious antitrust concerns.

AT&T, he said, "appears to have made no serious attempt" to address the fundamental competitive questions raised by the deal and was therefore not entitled to a modification of the antitrust agreement.

But instead of denying AT&T's request for a waiver on the merits of the case, Judge Greene rejected the request on the basis of an insufficient record and dismissed its plea "without prejudice."

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