AT&T and IBM Announce Strategic Agreements

Strategic Insights -

AT&T and IBM have announced a series of strategic agreements that involve the acquisition of IBM's Global Network business by AT&T for $5 billion in cash. The two companies will also enter into outsourcing contracts with each other, with IBM outsourcing significant portions of its global networking needs to AT&T, and AT&T outsourcing certain applications processing and data center management operations to IBM. The transactions are expected to generate $2.5 billion in additional revenue to AT&T in the first full year of operation, and could represent a significant boost to AT&T's growth strategy.

Key Takeaways:

  • AT&T will acquire IBM's Global Network business for $5 billion in cash, expanding its networking services unit, AT&T Solutions.
  • The acquisition will serve several hundred large global companies, tens of thousands of mid-sized businesses, and over 1 million individual Internet users in 59 countries.
  • About 5,000 IBM employees will join AT&T as part of the acquisition.
  • The deal includes significant outsourcing contracts, with IBM awarding AT&T Solutions a contract valued at $5 billion over five years, making it the single largest networking outsourcing contract ever awarded.
  • The transaction is expected to be completed by mid-1999, following clearance from U.S. regulators and certain regulatory authorities outside the U.S.
  • Earnings dilution from the transaction is expected to be insignificant in the first full year of operation and accretive thereafter.

Statistics:

  • The acquisition price is $5 billion in cash.
  • The transactions could generate $2.5 billion in additional revenue to AT&T in the first full year of operation.
  • The outsourcing contract awarded by IBM to AT&T Solutions is valued at $5 billion over five years.
  • The deal involves the transfer of about 5,000 IBM employees to AT&T.
  • The transaction is expected to be completed by mid-1999.

Sources:

  • BUSINESS WIRE, "AT&T and IBM Sign Strategic Agreements", December 8, 1998.
  • BUSINESS WIRE, "Editor's Note: NEW YORK NEWS CONFERENCE".