Bell Atlantic, Nynex gain major clout Nation's 2nd-largest phone company covers 'lucrative' Northeast

April 23, 1996|By Michael Dresser | Michael Dresser,SUN STAFF

If bigger is better in the brave new world of telecommunications, the "merger of equals" announced yesterday by Bell Atlantic Corp. and Nynex Corp. will give the combined company the clout to take on AT&T or anyone else in the business.

With their announcement yesterday, the two companies launched the nation's second-largest telecommunications company -- a corporate colossus with 134,000 employees and an iron grip on a region that Nynex Chairman Ivan Seidenberg called "the most lucrative market on the face of the Earth."

The merged company's telephone empire would encompass the entire Northeastern corridor, uniting Nynex's New York and Boston territories with Bell Atlantic's New Jersey, Philadelphia, Baltimore and Washington fiefdoms. Together, the two companies accounted for 37 million telephone lines last year, generating $27 billion in revenues and $5 billion in operating profits.

But some skeptics already were questioning whether the impressive numbers added up to a more formidable competitor or just a fatter telephone company. Other critics -- including AT&T Corp. and MCI Communications Corp. -- worried that the merger would be too successful, stifling competition before it can really get started.

But there were few naysayers in New York yesterday, where Mr. Seidenberg and Bell Atlantic Chairman Raymond W. Smith held a festive news conference to announce the long-rumored merger.

"As of today, the games will begin," said Mr. Smith, who vowed that the new company would take on the "cozy cartel" that dominates the long-distance business.

"The fact that AT&T and MCI have come out against this merger should tell you it's absolutely pro-competitive," Mr. Smith said.

After the second-largest corporate merger in history, the new company will operate under the name Bell Atlantic.

Mr. Smith and Mr. Seidenberg played down the cost-cutting aspects of the merger and stressed growth opportunities. They said about 3,000 managers whose jobs overlapped would be "redeployed," but that there would be no job cuts among unionized employees as a result of the merger.

"This deal is great for employees," Mr. Seidenberg said.

The merger turned out to be less than great for Nynex shareholders, who failed to receive the premium they had hoped for. Under the agreement, valued at $23 billion, Bell Atlantic shareholders will get 1.302 shares in the new company for each share they own. Nynex shareholders will trade their stock on a one-for-one basis.

Nynex stock fell $2.75, to $50.25, yesterday, while Bell Atlantic's rose $2.125 to close at $67.125.

Mr. Smith called the merger "the most natural partnership in the world," bringing together contiguous regions that account for 45 percent of long-distance calls placed or received in this country.

The two chairmen also said the merger will give the new Bell Atlantic added clout in dealing with vendors, especially suppliers of the equipment it will need to launch its planned assault on the cable television industry's turf.

For the most part, industry analysts seemed to agree, noting that the companies had already shown they could work together through their Bell Atlantic Nynex Mobile joint venture.

"It's just so ripe with marketing opportunities that it's the logical thing to do," said Daniel Briere, senior consultant with Tele-Choice Inc. in Verona, N.J. "It's such a strategic fit, it is really a left hand-right hand situation."

Peter Krasilovsky, senior analyst at Arlen Communications in Bethesda, said he is "real gung-ho about this deal," noting that it will let the combined Bell Atlantic market its products to the entire New York metropolitan area. Previously, Nynex's New York media ads were wasted on Bell Atlantic's New Jersey customers, while Bell Atlantic couldn't advertise in northern New Jersey without paying New York rates.

By joining forces, the two companies also avoid what could have been a costly confrontation at a time when the long-distance companies are poised to challenge their once-comfortable monopolies on local telephone service.

"If they didn't do this merger, they would have been competing with each other," Mr. Krasilovsky said.

That is precisely the problem with the merger, said Jeff Chester, executive director of the Center for Media Education, a consumer advocacy group. "The irony is that the telecommunications bill was supposed to encourage competition," he said, referring to the legislation passed in February.

"It's going to be bad for consumers. You're likely to see rates increase," Mr. Chester said. "Such a powerful entity is going to be able to forestall competition."

But other critics of the merger contend that the power of a bigger Baby Bell is exaggerated.

Mark Heckendorn, president of Versus Strategy Group Inc. in Washington, said Nynex and Bell Atlantic gain little from merging with another Bell operating company except a feeling of comfort.

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