AirTouch strikes new purchase accord First deal for U S West wireless unit thwarted

January 30, 1998|By BLOOMBERG NEWS

SAN FRANCISCO -- AirTouch Communications Inc. struck a new agreement yesterday to buy U S West Media Group Inc.'s U.S. wireless telephone business for $5.7 billion in stock and assumed debt, after an earlier transaction failed when Congress closed a tax loophole.

In a $5 billion accord reached in April, U S West was going to spin off all of its assets other than the wireless business and then sell the unit to AirTouch -- a now-banned move aimed at avoiding taxes. Now, U S West Media won't have to pay taxes until it disposes of the stock it will get from AirTouch.

The transaction, which the companies have attempted for four years, will help U S West Media concentrate on its cable TV business. It will make AirTouch the No. 2 wireless phone company behind AT&T Corp., with 6.2 million customers in 17 states.

"It's a fair price, and it enables both of them to focus on their businesses," said Michael Parker, managing director and portfolio manager at Spears, Benzak, Salomon & Farr, which owned 4.5 million AirTouch shares and 1.3 million U S West Media shares as of September.

U S West Media will get about $2.7 billion in AirTouch shares and $1.6 billion in dividend-paying preferred stock. The preferred will help U S West Media limit its tax liability, because about 70 percent of the dividend on preferred stock held by a company is tax-exempt under federal law.

San Francisco-based AirTouch will also take on $1.4 billion of U S West Media debt, which totaled $8.9 billion in September.

The value of the transaction is higher, because cash flow from U S West Media's wireless operations has improved, and rTC AirTouch's stock has gained about 83 percent since the April announcement, analysts and the companies said.

"AirTouch can afford now to pay U S West more," said Douglas Shapiro, an analyst at Deutsche Morgan Grenfell.

AirTouch shares closed at $44.25, down 68.75 cents yesterday; shares in U S West Media rose $1.8125 to to $29.

AirTouch and U S West originally sought a tax-free status for the sale as a so-called Morris Trust transaction, though they filed the agreement a day after a bill was proposed eliminating the exemption. A petition to include their agreement was turned down this summer.

After that, the companies reverted to their 1994 agreement, which called for a combination of the wireless businesses with the option for U S West to swap its stake in the combined company later for AirTouch shares. That would have taken several years.

Pub Date: 1/30/98

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