Us West, Airtouch Reaffirm Merger Plans But Tax Debate Could Still Cause Deal To Fall Through
US West and AirTouch on Friday confirmed their agreement to form the nation’s No. 2 wireless telephone company, but said a congressional tax debate still could cancel the multibillion-dollar deal.
As first announced last month, AirTouch Communications Inc. is buying the domestic mobile-phone business of US West Communications for about $2.3 billion in stock. AirTouch also will assume $2.2 billion of US West’s debt.
The companies said Friday they had signed a definitive merger agreement. But they also repeated earlier statements that the deal would be blocked if Congress revokes a tax break that would allow a tax-free distribution of AirTouch stock to shareholders of US West Media Group, a unit of US West.
‘We’re optimistic that our restructuring will be allowed to go forward, but we don’t know for sure,” said Steve Lang, a spokesman for US West.
Separately, US West said it plans to transfer its domestic directory publishing business - known as US WEST Dex from its Media Group to its Communications Group in the restructuring related to the AirTouch deal.
The deal was announced April 17, just after legislation was introduced in the House and Senate to prevent so-called Morris Trust deals, which have allowed companies to sell off businesses worth billions without paying federal taxes. Critics have cited such deals as a prime example of “corporate welfare.”
The legislation is designed to prevent such deals from occurring after April 16, 1997.
Officials from both companies said that if the legislation is enacted, it would block the merger, but that they are hopeful of an exemption because they had been talking about the deal for months.
“The question is whether our restructuring was in process for long enough before the legislation that it would qualify for transition rules, and we hope it does,” Lang said.
Amy Damianakes of AirTouch said the deal has actually been in the works since 1994 - and has included meetings with members of Congress and the IRS - so it shouldn’t come as a surprise to anyone.
“The world has known about this deal for a long time,” she said. “We’re going to do our best to help the players involved understand the history.”
If the sale goes through, AirTouch would be second only to AT&T Corp. in the wireless business, with annual revenue of $4.8 billion and 10 million customers.
“It’s very significant. In our industry, bigger is better because you can spread your costs over more customers and … price more competitively,” Damianakes said.
The sale would also help US West trim its debt and expand into new businesses, such as high-speed Internet access through cable lines.