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Friday, October 30, 2020  Spokane, Washington  Est. May 19, 1883
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Airtouch To Buy Us West’s Wireless Business But Proposed Legislation Eliminating Key Tax Break Could Torpedo $2.3 Billion Deal

David E. Kalish Associated Press

AirTouch Communications Inc. agreed to buy the domestic mobile-phone business of US West Communications, but the deal was threatened Friday by a drive in Washington to eliminate a tax break key to the merger.

While the $2.3 billion purchase would create the nation’s No. 2 wireless telephone company, the tax debate quickly overshadowed what would be a significant industry shake-up.

AirTouch and US West hope to get an exception to the proposed rule by stressing that they’ve been talking about the deal for months and that it was announced so shortly after the legislation’s introduction.

Industry observers said the deal had an even chance of being completed and noted that the legislation has the support of President Clinton and congressional Republicans.

“I would say, fifty-fifty,” said David Roddy, chief telecommunications economist at Deloitte & Touche LLP’s U.S. consulting unit.

“It’s awful tough to go to Congress and say, ‘These people deserve a special deal.”’

The sale would make San Francisco-based AirTouch second only to AT&T Corp. in the wireless business, ratcheting up the competition in the fast-growing U.S. market for go-anywhere phones. It also would help US West, a regional phone company with customers in 14 Western states, pare its steep debt load as it expands into new businesses such as high-speed Internet access through cable lines.

In addition to issuing stock to US West stockholders, AirTouch will assume $2.2 billion in US West debt in the deal. US West, with about $14.3 billion in debt, must pay high interest rates to investors and hopes that a reduced debt load will lower its borrowing costs.

Yet the companies said they would pursue the transaction only if Congress preserves the rules that make it tax-free. The deal assumes that AirTouch stock will be distributed tax-free to shareholders of US West Media Group, a unit of US West.

The legislation was introduced on Wednesday and would affect mergers after that date. The companies said they announced the deal on Thursday, although they didn’t issue a release until shortly before midnight Pacific time Thursday - early morning Eastern time on Friday.

“Unfortunately we concluded the talks one day late for the legislation,” said AirTouch spokeswoman Susan Rosenberg. She said the two sides signed the agreement as quickly as they could.

US West, based in Englewood, Colo., is one of the regional phone companies formed when AT&T Corp. was broken up in 1984. AirTouch was spun off from Pacific Telesis Group, another regional phone company, in 1994.

The deal would add considerably to AirTouch’s domestic business, giving it about 2 million US West mobile phone customers, 34 million potential customers and $300 million in annual cash flow. It also gets US West’s interest in Prime Co Personal Communications, a partnership created by AirTouch, US West, Nynex and Bell Atlantic to offer a new generation of digital wireless phones.

No layoffs are expected.

The deal doesn’t include US West’s overseas wireless operations.

The agreement calls for AirTouch to issue 93.3 million shares to US West Media Group shareholders if AirTouch stock is trading at $30 or lower. At Friday’s closing price of $24.50, the deal is worth about $2.29 billion.

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