AT&T to Acquire IBM’s Global Network Business for $5 Billion
Companies Also Sign Series of Outsourcing Contracts
NEW YORK (December 08, 1998) – . AT&T and IBM today announced a series of strategic agreements under which AT&T will acquire IBM’s Global Network business for $5 billion in cash, and the two companies will enter into outsourcing contracts with each other. IBM will outsource a significant portion of its global networking needs to AT&T. AT&T will outsource certain applications processing and data center management operations to IBM.
The transactions could represent $2.5 billion in additional revenue to AT&T in the first full year of operation.
The IBM Global Network business AT&T will acquire serves the networking needs of several hundred large global companies, tens of thousands of mid-sized businesses and more than 1 million individual Internet users in 59 countries.
The acquisition boosts AT&T’s strategy to rapidly increase the company’s revenue, especially at its fast-growing networking services unit, AT&T Solutions. About 5,000 IBM employees will join AT&T as part of the acquisition.
“These strategic agreements are all about growth,” said AT&T Chairman and CEO C. Michael Armstrong. “Growth in revenue, growth in technology, and — most important — growth in what AT&T can do for customers.
“For AT&T, today’s announcement supports four areas we’ve targeted for growth: global services, data networking, Internet Protocol technology and network outsourcing through our AT&T Solutions business,” said Armstrong. “The acquisition of IBM’s global data network will accelerate our ability to deliver IP-based services to global customers. It will give us a sophisticated new platform for revenue growth.”
By providing customers with more attractive global services, Armstrong said the acquisition will enable AT&T to compete more effectively with strong rivals for the provisioning of global managed data network services, including IP.
“We are delighted that AT&T will be the new home for our Global Network operation,” said IBM Chairman and CEO Louis V. Gerstner, Jr. “With this agreement, the network will receive the management focus and resources necessary to maintain its standing as a world-class provider of connectivity to IBM and millions of customers.
“AT&T will use its expertise to enhance and expand the Global Network to the benefit of its customers, including IBM,” he said. ”We can now focus fully on helping our customers take advantage of the emerging networked world through e-business applications and solutions.”
IBM’s Global Network has more than 1,300 dial-up points of presence and dedicated access from more than 850 cities in 59 countries. The Global Network offers business customers innovative services and worldwide operations and support, including in-country, native-language support personnel.
AT&T said its acquisition of IBM’s high capacity global network would be supportive of the 100-city, IP-based network that would be created as part of the global joint venture announced by AT&T and BT in July.
IBM said that this transaction, in its entirety, is not expected to have a significant impact on the company’s 1999 operational results. AT&T said earnings dilution from the transaction is expected to be insignificant in the first full year of operation and accretive thereafter.
AT&T and IBM said they expect the acquisition to conclude by mid-1999, following clearance by U.S. regulators and certain regulatory authorities outside the U.S.
Armstrong said today’s announcement is about more than acquiring IBM’s global network. “We have also reached several significant outsourcing agreements that match each company’s strengths with the other company’s business needs,” he said.
IBM has awarded AT&T Solutions an outsourcing contract valued at $5 billion over five years for a significant portion of IBM’s own global networking needs, making it the single largest networking outsourcing contract ever awarded. The contract is expected to double the network outsourcing revenue of AT&T Solutions and will enable it to grow more rapidly by serving a wider set of customer needs with a broadened scope of services.
In addition, AT&T and IBM’s Global Services unit have reached agreement for outsourcing services valued at about $4 billion over the next 10 years. As part of the agreement, IBM will manage AT&T’s legacy applications processing, including billing, service-order-processing, installation and maintenance, for customers of AT&T business long-distance services. In addition, IBM will assume management of AT&T’s data processing centers, which operate corporate information systems such as accounts payable and receivable and employee payroll and benefits. Under the agreement, more than 2,000 AT&T management employees will be offered positions with IBM.
Source: IBM