Filed by SBC Communications Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: AT&T Corp.
Commission File No.: 1-01105
SBC + AT&T
A Premier Provider for a New Era of Communications
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Agenda
Strategic Overview
Edward E. Whitacre Jr.
Chairman and Chief Executive Officer SBC Communications
David W. Dorman
Chairman and Chief Executive Officer AT&T
Operational Plans
Randall Stephenson
Chief Operating Officer SBC Communications
Financial Summary
Rick Lindner
Senior Executive Vice President and Chief Financial Officer SBC Communications
Q and A
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Cautionary Language Concerning Forward-Looking Statements
Information set forth in this [presentation/press release] contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially Such statements include, but are not limited to, statements about the benefits of the business combination transaction involving SBC and AT&T Corporation, including future financial and operating results, the new company’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of SBC’s and AT&T’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.
The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the ability to obtain governmental approvals of the transaction on the proposed terms and schedule; the failure of AT&T shareholders to approve the transaction; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; competition and its effect on pricing, spending, third-party relationships and revenues. Additional factors that may affect future results are contained in SBC’s filings with the Securities and Exchange Commission (“SEC”), which are available at the SEC’s Web site http://www.sec.gov. SBC disclaims any obligation to update and revise statements contained in this presentation based on new information or otherwise.
This [presentation] may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on SBC’s Web site at www.sbc.com/investor_relations.
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Note
In connection with the proposed transaction, SBC intends to file a registration statement, including a proxy statement of AT&T Corp., and other materials with the Securities and Exchange Commission (the “SEC”). Investors are urged to read the registration statement and other materials when they are available because they contain important information. Investors will be able to obtain free copies of the registration statement and proxy statement, when they become available, as well as other filings containing information about SBC and AT&T Corp., without charge, at the SEC’s Internet site (http://www.sec.gov). These documents may also be obtained for free from SBC by directing a request to SBC Communications Inc., Stockholder Services, 175 E. Houston, San Antonio, Texas 78258. Free copies of AT&T Corp.’s filings may be obtained by directing a request to AT&T Corp., Investor Relations, One AT&T Way, Bedminster, New Jersey 07921.
SBC, AT&T Corp. and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from AT&T shareholders in respect of the proposed transaction. Information regarding SBC’s directors and executive officers is available in SBC’s proxy statement for its 2004 annual meeting of stockholders, dated March 11, 2004, and information regarding AT&T Corp.’s directors and executive officers is available in AT&T Corp.’s proxy statement for its 2004 annual meeting of shareholders, dated March 25, 2004. Additional information regarding the interests of such potential participants will be included in the registration and proxy statement and the other relevant documents filed with the SEC when they become available. In connection with the proposed transaction, SBC intends to file a registration statement, including a proxy statement of AT&T Corp., and other materials with the Securities and Exchange Commission (the “SEC”). Investors are urged to read the registration statement and other materials when they are available because they contain important information. Investors will be able to obtain free copies of the registration statement and proxy statement, when they become available, as well as other filings containing information about SBC and AT&T Corp., without charge, at the SEC’s Internet site (http://www.sec.gov). These documents may also be obtained for free from SBC by directing a request to SBC Communications Inc., Stockholder Services, 175 E. Houston, San Antonio, Texas 78258. Free copies of AT&T Corp.’s filings may be obtained by directing a request to AT&T Corp., Investor Relations, One AT&T Way, Bedminster, New Jersey 07921.
SBC, AT&T Corp. and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from AT&T shareholders in respect of the proposed transaction. Information regarding SBC’s directors and executive officers is available in SBC’s proxy statement for its 2004 annual meeting of stockholders, dated March 11, 2004, and information regarding AT&T Corp.’s directors and executive officers is available in AT&T Corp.’s proxy statement for its 2004 annual meeting of shareholders, dated March 25, 2004. Additional information regarding the interests of such potential participants will be included in the registration and proxy statement and the other relevant documents filed with the SEC when they become available.
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Edward E. Whitacre Jr.
Chairman and Chief Executive Officer SBC Communications
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World-Class Assets, Substantial Synergies
Best-in-class, complementary networks and product sets A commitment to innovate in advanced data and IP-based services Financial strength and flexibility
Substantial synergies driven by clear, achievable cost opportunities. Net synergies exceed the value of the stock issued.
Transaction expected to be cash flow positive in 2007, earnings positive in 2008
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Strategy
To create a premier, global provider with the capabilities to succeed in a new era of communications Accelerate expansion in growing enterprise space
Help customers transition to new technologies, migrate advanced solutions and products from high-end to mass market Realize significant operating efficiencies available from scale and next-generation technologies
World- class networks
Best-in- class product portfolio
Financial strength
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Strategic Profile
Combined company will have significantly greater capabilities than either company has, or could develop, on their own.
Outstanding network reach – wireline and wireless Superior product and service offerings Strong brands and customer relationships Diversified revenue and customer base
World-class sales, marketing and technical support capabilities Extensive global service platforms Deep technology know-how Experienced, proven management team
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A Great Opportunity
Tremendous assets
Networks
Customer relationships Technological expertise Brand
Substantial operating efficiencies Clear path to delivering synergies
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David W. Dorman
Chairman and Chief Executive Officer AT&T
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The Communications Industry Is Moving Through Major Transitions
Stand-alone products and bundles
Service integration, unified communications
Circuit switched and private line
Packet data, IP, VoIP
Legacy transport networks
Unified networks, IP core
Multiple, labor-intensive support systems
Unified, automated systems
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Transforming AT&T
Strengthened position in the business market
Serves millions of businesses, virtually all of the
Fortune 1,000
Nearly 75% of total AT&T revenues now originate from the business market
An unmatched portfolio of global products and services with an end-to-end solution set
Built one of world’s largest IP backbones
Reduced costs while enhancing service
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Combination with SBC Moves Both Companies to a New Level
Combines AT&T’s industry-leading global and national platforms with SBC’s strong local and wireless networks
Creates value for stockholders of both companies
Significant synergies
A more robust provider built to excel as the industry migrates to a new era
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Randall Stephenson
Chief Operating Officer SBC Communications Inc.
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Critical Assets
One of the world’s largest IP backbones, with global reach and a meshed architecture Network with MPLS on edge and core to provide Quality of Service Network density outside of SBC’s traditional regions Complex ordering system on a single platform for all products Billing system aggregator to produce a single customer bill Robust Web portal for customer self service on all IP products AT&T Labs – powerful resource Advanced complex voice and IP product sets including feature-rich unified communications, business and consumer VoIP, IP-VPN
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Complementary Networks
Advanced nationwide network
77,000 route miles 750 points of presence local facilities in 91 cities
Unmatched global reach
Network assets in 50 countries and 850 cities around the globe 26 advanced data centers
Dense local access network
52 million access lines 5.1 million DSL lines
Broadband to 77% of customer locations
Cingular Wireless
290 million licensed POPs 49 million subscribers
Network transformation under way, moving to IP-based UMTS with HSDPA 3G technology
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Synergies
Headquarters Network Operations IT Support Business Markets Procurement
More than $15 billion net present value of identified synergies
Approximately $2 billion annual net synergy run rate by 2008, growing to exceed $3 billion by 2011
More than 85% of synergies come from cost reductions In the enterprise space alone, redundant sales, network and customer care costs total $1.6 billion annually
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Organizational Integration
AT&T headquarters staff merged into SBC organizations AT&T’s network operations organization will become the backbone for all of SBC’s IP-based and long distance services.
Enterprise, government, large commercial and multinational accounts organizations combined IT organizations combined Procurement organizations combined
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Business Markets Synergies
Consolidate business marketing and operations groups Consolidate enterprise sales and support Consolidate government sales units Consolidate wholesale operations into single organization
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Network Synergies
Long distance savings from moving traffic and services to AT&T networks Merge SBC and AT&T long distance operations Optimize all transport facilities in and out of region Shift SBC dial-up internet traffic to AT&T
Consolidate SBC IP networks into AT&T backbone network
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Network Synergies
Combine and optimize network centers Optimize all local switches in SBC regions Combine all field forces into a highly efficient operation with centralized dispatch centers Consolidate network planning and engineering functions
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IT Synergies
Consolidate data centers, desktop support Migrate to single set of business support systems, rationalizing SBC initiatives in this area Rationalize billing platforms Leverage purchasing volumes with vendors
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Revenue Synergies
Industry Projections
IP-VPN(1) 20%
Ethernet(1) 19%
Hosting(2) 10%
Network Management(1) 12%
VoIP(3) 54%
(1) Bain Consulting 2003-2012 CAGR (2) IDC 2003-2007 CAGR
(3) ATLANTIC ACM 2003-2009 CAGR
Incremental revenue growth above stand-alone revenues, driven by expansion of IP product set into all business segments Expect revenue growth for combined company in 2008
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Opportunities
Significant synergies, clearly identified and achievable
Critical assets and capabilities to accelerate progress and avoid development costs Complementary networks that provide foundation for integrated services
National/global, IP backbone Local access Broadband access
Nationwide IP-based UMTS/HSDPA wireless network
After integration, the combined company will have unmatched network scope, network density and cost structure, with a rich set of services on the edge.
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Rick Lindner
Senior Executive Vice President and Chief Financial Officer SBC Communications Inc.
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SBC/AT&T –
Transaction Summary
Equity Acquisition $15 billion
$1 billion
$6 billion
0.77942 shares of SBC for each share of AT&T ($18.41 based on 1/28/05 closing price) Special dividend $1.30 per share Net debt1 $22 billion Total value
1As of 12/31/04
Approvals required from DOJ, FCC, state PUCs, and various foreign and local authorities Transaction expected to close in the first half of 2006
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Financial Impacts of the Transaction
Free cash flow positive in 2007
EPS positive in 2008
More than $15 billon NPV of expected net synergies
Exceeds value of stock to be issued in transaction Annual net synergy run rate of approximately $2 billion by 2008, growing to exceed $3 billion by 2011
No impact on credit metrics Purchase accounting
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Substantial Synergy Opportunities
Merge operations Optimize facilities Scale
Network and IT
Marketing Sales Support Operations
Business Operations
Corporate staff
Overhead
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Network and IT Operating Synergy Opportunities
(dollars in billions) 2H06 2007 2008 2009
Expected Expense Synergies $0.1—$0.2 $0.5—$0.6 $0.9—$1.0 $1.0—$1.1
Expected Integration Costs ($0.8)—($0.7) ($0.6)—($0.5) ($0.3)—($0.2) ($0.1)—$0.0
Expected Net Expense Synergies ($0.7)—($0.5) ($0.1)—$0.1 $0.6—$0.8 $0.9—$1.1
Expected Network and IT
Operating Synergies
(dollars in billions) $0.1—$0.2
2H06 $0.5—$0.6
2007 $0.9—$1.0
2008 $1.0—$1.1
2009
Sources of Operating Synergies
Merge LD network and operations Optimization of transport, out of region facilities and network operations Procurement IT/Systems
Consolidate IP traffic
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Business Operating Synergy Opportunities
(dollars in billions) 2H06 2007 2008 2009
Expected Expense Synergies $0.0—$0.1 $0.3—$0.4 $0.5—$0.6 $0.6—$0.7
Expected Integration Costs ($0.2) – ($0.1) ($0.3) – ($0.2) ($0.2) – ($0.1) $0.0
Expected Net Expense
( $0.2)—$0.0 $0.0—$0.2 $0.3—$0.5 $0.6—$0.7
Synergies
Expected Business Operating Synergies
(dollars in billions)
2H06 $0.0—$0.1
2007 $0.3—$0.4
2008 $0.5—$0.6
2009 $0.6—$0.7
Sources of Operating Synergies
Marketing Operations Sales & Support
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Corporate Operating Synergy Opportunities
(dollars in billions) 2H06 2007 2008 2009
Expected Expense Synergies $0.0—$0.1 $0.2—$0.3 $0.4—$0.5 $0.4—$0.5
Expected Integration Costs ($0.9)—$(0.8) ($0.2) – ($0.1) ($0.1)—$0.0 $0.0
Expected Net Expense Synergies ($0.9)—$(0.7) $0.0—$0.2 $0.3—$0.5 $0.4—$0.5
Expected Corporate Operating Synergies
(dollars in billions)
2H06 $0.0—$0.1
2007 $0.2—$0.3
2008 $0.4—$0.5
2009 $0.4—$0.5
Sources of Operating Synergies
Executive Legal
Human Resources Public Relations Finance
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Capital Expenditure Synergy Opportunities
(dollars in billions) 2H06 2007 2008 2009
Expected Capital Synergies $0.1—$0.2 $0.1—$0.2 $0.2—$0.3 $0.2—$0.3
Expected Integration Capital ($0.1)—$0.0 ($0.1)—$0.0 $0.0 $0.0
Expected Net Capital Synergies $0.0—$0.2 $0.0—$0.2 $0.2—$0.3 $0.2—$0.3
Expected Capital Synergies
(dollars in billions)
2H06 $0.1—$0.2 $0.1—$0.2
2007 $0.2—$0.3
2008 $0.2—$0.3
2009
Sources of Capital Synergies
Procurement
Transport facilities – nationwide and SBC in-region IT data centers, support & systems
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Revenue Synergy Opportunities
(dollars in billions) 2H06 2007 2008 2009
Expected Revenue Synergies(EBITDA Impact) $0.0 $0.0—$0.1 $0.1—$0.2 $0.2—$0.3
Expected EBITDA from Revenue Synergies
(dollars in billions)
2H06 $0.0
2007 $0.0—$0.1
2008 $0.1—$0.2
2009 $0.2—$0.3
Sources of Revenue Synergies
Expansion of in-region medium and small business segments
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Purchase and Other Accounting Impacts
(dollars in billions) 2H06 2007 2008 2009
Expected Accounting Impacts1 ($0.3)—($0.2) ($0.5)—($0.4) ($0.5)—($0.4) ($0.2)—($0.1)
1 Subject to final determination at closing with final valuation.
Expected Accounting Impacts
(dollars in billions)
($ 0.3)—($-0.2)
($ 0.5) -($0.4)
($ 0.5) -($0.4)
($ 0.2)—($0.1)
2H06
2007
2008
2009
Sources of Accounting Impacts
Amortization of intangibles Debt premium One-time impairments
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Summary of Financial Impacts
(dollars in billions, pretax) 2H06 2007 2008 2009
Synergies
Revenue synergies (EBITDA Impact) $0.0 $0.0—$0.1 $0.1—$0.2 $0.2—$0.3
Expense synergies $0.1—$0.4 $1.0—$1.3 $1.8—$2.1 $2.0—$2.3
Capex synergies $0.1—$0.2 $0.1—$0.2 $0.2—$0.3 $0.2—$0.3
Total synergies $0.2—$0.6 $1.1—$1.6 $2.1—$2.6 $2.4—$2.9
One-time costs
Integration costs – Expense ($1.9)—($1.6) ($1.1)—($0.8) ($0.6)—($0.3) ($0.1)—$0.0
Integration costs – Capital ($0.1)—$0.0 ($0.1)—$0.0 $0.0 $0.0
Integration costs – Total ($2.0)—($1.6) ($1.2)—($0.8) ($0.6)—($0.3) ($0.1)—$0.0
Purchase accounting impacts1
Noncash impacts ($0.3)—($0.2) ($0.5)—($0.4) ($0.5)—($0.4) ($0.2)—($0.1)
1 Subject to final determination at closing with final valuation.
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Expected SBC EPS Impacts
(earnings per share) 2H06 2007 2008 2009
Operating income, synergies $0.00 – $0.07 – $0.23 – $0.28 –
and stock financing $0.02 $0.09 $0.26 $0.31
Integration costs $(0.28) – $(0.16) – $(0.09) – $(0.03) –
$(0.25) $(0.13) $(0.06) $(0.01)
Impacts before $(0.28) – $(0.08) – $0.16 – $0.26 –
accounting costs $(0.23) $(0.05) $0.19 $0.30
Accounting costs1 $(0.05) – $(0.08) – $(0.08) - $(0.04) –
$(0.03) $(0.06) $(0.06) $(0.02)
Reported EPS Impacts $(0.31) – $(0.15) – $0.09 – $0.23 –
$(0.28) $(0.12) $0.11 $0.27
1 Subject to final determination at closing with final valuation.
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Financial Summary
Significant achievable synergies Cash flow positive in 2007
Cash flows provide potential for continued dividend growth, share repurchase and debt retirement Earnings positive starting in 2008
No impact on credit metrics
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SBC + AT&T
A Premier Provider for a New Era of Communications
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