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AT&T Buys IBM Global Network for $5 Billion

AT&T Corp. Tuesday purchased IBM Corp.'s Global Network for $5 billion in cash in a deal that will raise the profile of AT&T's international Internet business and allow the company to move beyond its traditional long distance core.

IBM Global Network 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 network has more than 1,300 dial-up points of presence and dedicated access from 850 cities in 59 countries.

The companies also signed additional contracts, including a deal for IBM to outsource a major portion of its international networking business to AT&T. AT&T in turn, will outsource various applications processing and data center management operations to IBM. The outsourcing agreements could net AT&T $2.5 billion in revenues in the first year of operation.

AT&T and IBM expect the acquisition to close by mid-1999, contingent upon approval from U.S. and international regulators. Approximately 5,000 IBM employees will join AT&T as part of the acquisition.

IBM said the transaction is not expected to have a major impact on the company's 1999 operational results. AT&T said the deal should start enhancing its bottom line in the second full year of operation.

AT&T said the network buy is part of its strategy to boost revenue by adding resources to its networking services unit, AT&T Solutions. AT&T Chairman and Chief Executive Officer C. Michael Armstrong said by offering more global services, the acquisition will enable AT&T to compete more effectively with rivals in the provisioning of global managed data network services, including IP.

"These strategic agreements are all about growth," Armstrong said. "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," he said.

"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."

In addition, AT&T said the purchase will support the 100-city, IP-based network that is currently under development as part of its global joint venture with British Telecom, announced in July.

Armstrong said that the outsourcing agreements AT&T reached with IBM were as important as the IBM network acquisition.

"We have also reached several significant outsourcing agreements that match each company's strengths with the other company's business needs," he said.

In addition to the $5 billion IBM outsourcing contract awarded to AT&T Solutions, the companies also reached an agreement for outsourcing other services worth approximately $4 billion over the next 10 years.

IBM will manage AT&T's legacy applications processing, which includes billing, service-order-processing, installation and maintenance, for customers of AT&T business long-distance services. IBM will also manage AT&T's data processing centers which run 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.

"We are delighted that AT&T will be the new home for our Global Network operation," said IBM Chairman and Chief Executive Officer 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."