Up Front
Edited by Sheridan Prasso
Talk Show
"If I am killed, one thousand new Osamas will replace me." -- Osama bin Laden. The name Osama is a favorite name being given to babies in Pakistan.
THE DEAL MILL
AT&T and BellSouth Talk Merger
This may be the final act for AT&T (T
). BusinessWeek has learned that CEO Mike Armstrong has proposed a "merger of equals" with BellSouth (BLS
). Sources familiar with the deal say AT&T dispatched President David Dorman in mid-September with the offer: AT&T would first spin off its cable-TV unit, then merge its remaining telecom businesses with BellSouth. CEO Duane Ackerman is interested if the price is right, the sources say.
The value of the deal and who would take over management are up in the air. The talks, code-named "Brazil," could fall apart at any time or another suitor could emerge. But AT&T wants to seal the deal by the end of October, according to the sources. Neither company will comment on the proposal.
After AT&T spins off its cable unit, it will have a market cap of $30 billion to $40 billion--compared with BellSouth's $79 billion. That would make the "merger of equals" Armstrong envisages difficult. AT&T spun off its wireless unit earlier this year. Comcast (CMCSK
) is offering $35 billion for cable, but Armstrong is seeking bids from others such as AOL Time Warner (AOL
).
The deal with BellSouth would reunite AT&T with a big piece of the old Bell system, which it spun off in a 1984 court-ordered breakup. Former FCC Chairman Reed Hundt said in 1997, when AT&T was considering merging with SBC Communications (SBC
), that such a deal was "unthinkable." But a lot has changed. The telecom industry is in a deep recession that has eroded AT&T's position. The current FCC is also more receptive to industry consolidation.
There are obstacles. BellSouth is barred by law from offering long-distance service in its nine-state local-phone territory in the South. AT&T is confident the deal could be approved with conditions. The Telecom Act bars BellSouth from owning large stakes in cable. That's one reason AT&T is keen to sell its unit.
The deal makes strategic sense. Neither BellSouth nor AT&T have the scale to match SBC and Verizon (VZ
), the strongest players in U.S. telecom. The deal would catapult BellSouth to the forefront of the long-distance pack and--more important--make it a leading presence in services for big businesses.
But merger is no panacea. AT&T has lots of operational problems. Whoever ends up running it will have plenty of work to do.
By Steve Rosenbush
THE DEAL MILL
A Bell Reunion?
STRUCTURE
After AT&T completes the sale of its cable-TV unit, to Comcast or perhaps to AOL Time Warner, it would combine the remaining telecom units with BellSouth. Price and management to be determined. AT&T wants the deal sealed by end October.
CHALLENGES
Regulations limit BellSouth's ability to own cable TV or offer long-distance phone service. So AT&T wants to spin off its cable.
THE BIG PICTURE
Stocking Up
After the World Trade Center and Pentagon attacks, many Americans planned to change their behavior in anticipation of continued violence.
Respondents who said they would:
Avoid flying on airplanes: 42%
Cut back on spending: 40%
Stockpile emergency supplies: 30%
Avoid public places: 14%
Buy and store extra gasoline: 14%
Survey of 1,082 Americans, Sept. 13, 2001
Data: Harris Interactive
HONCHOS
Pressure Is On to Share the Pain
Donald Carty, the American Airlines CEO who earned $4.5 million last year, may be on to something. He announced Sept. 24 that he would give up his pay for the remainder of the year--days after laying off 20,000 employees.
The pressure is mounting for others to do the same, compensation experts say. With airlines laying off 110,000 employees in the wake of the Sept. 11 attacks, CEOs like Philip Condit at Boeing (BLS
) and Gordon Bethune at Continental will find calls to take voluntary pay cuts increasing. Condit made $19.8 million last year, Bethune $13.7 million. Hardly excessive by CEO standards, but with stock prices plunging, investors as well as labor groups want to see top management share their pain. "Shareholders are going to be expecting that," says Ira Kay, compensation consultant at Watson Wyatt Worldwide.
Tourism and media, where CEOs such as Disney's Michael Eisner made $72.8 million last year, may be next on the hit list. Notes Patrick McGurn, corporate programs director at proxy advisers Institutional Shareholder Services: "Anger is definitely high out there."
By Louis Lavelle
THE LIST
Terror's Aftermath: Layoffs
Who knows how many of these might have come anyway? But since Sept. 11, companies have cut more than 160,000 jobs. Airlines were the hardest hit, but other industries were also affected. Here are some of the biggest:
THE LIST
The Largest Cuts
COMPANY CUTS INDUSTRY
BOEING 30,000 Aerospace
AMERICAN AIRLINES 20,000 Airline
UNITED 20,000 Airline
DELTA 13,000 Airline
CONTINENTAL 12,000 Airline
STARWOOD HOTELS & RESORTS 12,000 Hotel
US AIRWAYS 11,000 Airline
NORTHWEST 10,000 Airline
BRITISH AIRWAYS 7,000 Airline
AIR CANADA 5,000 Airline
HONEYWELL INT'L 3,800 Aerospace/Diversified materials
SWISSAIR 3,000 Airline
ALITALIA 2,500 Airline
TEXTRON 2,500 Aircraft manufacturing
EMC 2,400 Data storage
ADVANCED MICRO DEVICES 2,300 Microprocessors
AMERICA WEST 2,000 Airline
APPLIED MATERIALS 2,000 Semiconductors
MIDWAY 1,700 Airline
VIRGIN ATLANTIC 1,200 Airline
Data: Company reports
PLANE TALK
Airports Are in a Holding Pattern
It's not just airlines that are in deep trouble after the Sept. 11 terrorist attacks. Airports are hurting, too. In the weeks since the attack, officials in at least 14 cities--including Atlanta; Boston; Dallas; Detroit; Fort Lauderdale; Manchester, N.H.; Miami; Orlando; Raleigh, N.C.; Salt Lake City; San Francisco; and Tampa--have said that runway, terminal, and parking-deck expansions would be halted or placed under review.
Why? The attacks, as we know, have slashed air traffic for the time being. But more important, airport administrators are waiting for revised--and probably expensive--security requirements to be announced by Transportation Secretary Norman Mineta by Oct. 1. "We're trying to see what our new life will be," says James Koslowski, chairman of the American Association of Airport Executives. Vendors are also pulling out of contracts for fear that heightened security--such as barring friends and family from the gates--will severely cut into revenues. Some airports, at least, including three in Houston undergoing $2.7 billion worth of expansions, will continue.
But there will be little help from the feds: The House Committee on Transportation & Infrastructure has put $3.3 billion in funds earmarked for airport upgrades next year on hold. Looks as if air travel won't get easier anytime soon.
By Brian Grow
JOB WOES
Student Defaults in Terror's Wake?
With a bad job market made worse by terrorism-related layoffs, recent college graduates are finding it harder to find work--and keep it. About 46.3 million former students owe a total of $150 billion in college loans. And the stormy job climate has financial-aid types worried. "It could cause repayment problems," says Nina Prikazsky, vice-president for operations at lender Nellie Mae. Adds Greg Leis, an adviser to USA Funds, the nation's largest guarantor of student loans: "We could begin to see an increase [in defaults] around year's end."
For borrowers still in school, USA Funds is preparing to launch a campus pilot program called Life Skills designed to head off future defaults. With college costs continuing to rise and with the average student owing nearly $10,000 at graduation, financial-aid counselors welcome anything that might help. "Many students don't have any idea how much debt they're incurring--and no idea what it's going to take to repay that debt," says a program spokesman. Even though defaulting on student loans fell steadily during the eight years of economic boom in the 1990s--from 22.4% to 5.6%--it's a different environment now.
Students at the 25 institutions offering the financial-planning project may be asked to do extra homework: a video and workbook tutorial on how to save money. Needless to say, the course is pass/fail.
By Julia Cosgrove
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Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
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