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
“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.”