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
Special Analyst Meeting
Feb 1, 2005
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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
John Stankey
Senior Executive Vice President Chief Technology Officer SBC Communications
Mark Keiffer
Senior Vice President-Business Marketing SBC Communications
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Agenda
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 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.
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Edward E. Whitacre Jr.
Chairman and Chief Executive Officer SBC Communications
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World-Class Assets, Large Synergy Opportunities
Best-in-class, complementary networks
Advanced product sets
Accelerated expansion in enterprise space Nationwide presence and global reach Substantial synergies driven by clear, achievable cost opportunities
Expect closing in early 2006
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David W. Dorman
Chairman and Chief Executive Officer AT&T
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Randall Stephenson
Chief Operating Officer SBC Communications Inc.
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Major Areas of Opportunity
1. World-class, complementary networks
One of the world’s largest IP backbones, huge capacity
National network with MPLS on edge and core
Global network reach
SBC’s local access network
Broadband access
Cingular’s nationwide IP-based UMTS/HSDPA wireless network
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Major Areas of Opportunity
1. World-class, complementary networks
2. Critical product sets, service platforms
Complex ordering system, single platform for all products Advanced Billing system aggregator Robust Web portal for customer self-service on all IP products AT&T Labs – crown jewel of telecom
Advanced complex voice and IP product sets
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Major Areas of Opportunity
1. World-class, complementary networks
2. Critical product sets, service platforms
3. Large, straightforward synergies
Headquarters Network Operations IT Support Business Markets Procurement
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Synergies
More than $15 billion net present value
Start immediately after integration, and ramp quickly 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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After Integration
The Result
Low-cost, high-quality infrastructure with unmatched network scope and density
Rich set of integrated services on the edge
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Mark Keiffer
Senior Vice President Business Marketing SBC Communications Inc.
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SBC Data and IP Backbone Networks
Seattle
San Francisco Pleasanton Santa Clara
Los Angeles
Irvine
Anaheim
Phoenix
Denver
Minneapolis
Kansas City
Chicago
Detroit
Cleveland
Boston
New York City
Washington, D.C.
Core Routes SBC Regional States Core POPs POPs
Austin
San Antonio
Richardson
Dallas Houston
Corpus Christi
Atlanta
Tampa
Miami
AT&T U.S. Network Points of Presence
San Luis Obispo
San Diego
New Orleans Orlando
4ESS 5ESS DMS
Boston Bridgeport
Newark NYC
AT&T’s Intelligent Optical Network
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AT&T Global Network
2004 Approved Expansion Existing Nodes
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Leading-Edge Products and Customer Care
Voice
Suite of differentiated IP services International network services Federal government portfolio
Online network monitoring, management, billing: “e-Delivery”
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Enterprise Expertise
Advanced voice, data, IP, security and other certifications
Top value-added service providers for Cisco, Nortel, Avaya and other network equipment manufacturers Portfolio supported by premier research and development organizations Heritage of innovation and patented technologies Leaders in industry standards forums
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Enterprise Sales and Business Operations Synergies
SBC Enterprise
Synergies
Sales 4,500
1,700
5,500 Sales
Bus Ops 12,600
3,400
11,300 Bus Ops
AT&T Enterprise
Sales
Eliminate redundant sales and support personnel
Business Ops
Leverage customer service management Eliminate duplicate billing inquiry centers
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John Stankey
Senior Executive Vice President Chief Technology Officer SBC Communications Inc.
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Complementary Strengths
SBC
Dense local broadband access
Leader in layer 1 operating efficiencies Broad customer base in need of security Strong billing/Care IT orientation Rapid growth of IP traffic (Lightspeed, DSL) Opportunity to lower operating costs in rural areas with wireless technology and access to RF spectrum World-class procurement operation Hedge on regulatory access charges Leader in local access capabilities
AT&T
Most robust IP backbone
Leader in Layer 2/3 operating efficiencies Leader in developing network-based security solutions Strong NE and configuration Capacity to handle IP traffic Directed research with wireless access alternatives
More spend to leverage
Hedge on regulatory access charges
Local access assets to be leveraged
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Execution Imperative
1. Operational Cost Reduction
Adoption of AT&T investments in efficiency and automation against entire Layer 2 customer base
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Execution Imperative
1. Operational Cost Reduction
2. Scale
Traffic component of business is approaching commodity levels. This aggregates traffic from largest backbone data provider and largest local data provider. Couple traffic with operational efficiency and superior buying power, and we are positioned to be lowest marginal cost provider
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Execution Imperative
1. Operational Cost Reduction
2. Scale
3. Capital Efficiency
Eliminates overlap and duplication and capitalizes on second-to-none vendor leverage. The opportunity to eliminate duplication cannot be understated as networks flatten and IP traffic increases
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Execution Imperative
1. Operational Cost Reduction
2. Scale
3. Capital Efficiency
4. Operations Integration
The opportunity to build work processes around a single network view and not an artificially imposed long haul and local hierarchy
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Achieving Operational Efficiencies
As a new entrant to the enterprise long haul market, SBC has achieved initial success and continues to invest heavily to improve our effectiveness and scale
However, when measured against employees directly supporting ordering, provisioning, care and network management functions for enterprise markets:
AT&T’s IP backbone carries an order of magnitude more traffic than SBC on a per employee basis
AT&T is over 3X more productive in supporting frame and ATM ports on a per employee basis AT&T carries 3X the long distance MOU on a per employee basis
This presents excellent operational synergy opportunities
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Operational Efficiencies
Total Targeted
Pop Reduction %
Redundant Engineering 2,885 550 19%
Data Design 40%
Out of Region 15%
Legacy Switching 27%
Core Planning 18%
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Operational Efficiencies
Total Pop Targeted Reduction %
Redundant Engineering 2,885 550 19%
Enterprise Data Ordering 2,700 1,100 40%
Brings SBC mechanized order rates for inter-LATA circuits to AT&T levels
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Operational Efficiencies
Total Pop Targeted Reduction %
Redundant Engineering 2,885 550 19%
Enterprise Data Ordering 2,700 1,100 40%
Enterprise Data Provisioning 3,600 1,200 33%
Achieves AT&T flow through rules on network element provisioning
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Operational Efficiencies
Total Pop Targeted Reduction %
Redundant Engineering 2,885 550 19%
Enterprise Data Ordering 2,700 1,100 40%
Enterprise Data Provisioning 3,600 1,200 33%
Enterprise Care Functions 7,500 1,500 20%
Migrates SBC’s inter-LATA customers to AT&T Business Direct infrastructure
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Operational Efficiencies
Total Pop Targeted Reduction %
Redundant Engineering 2,885 550 19%
Enterprise Data Ordering 2,700 1,100 40%
Enterprise Data Provisioning 3,600 1,200 33%
Enterprise Care Functions 7,500 1,500 20%
Network Management 2,600 700 27%
Combines all packet traffic onto AT&T backbone and eliminates redundant surveillance functions
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Operational Efficiencies
Total Pop Targeted Reduction %
Redundant Engineering 2,885 550 19%
Enterprise Data Ordering 2,700 1,100 40%
Enterprise Data Provisioning 3,600 1,200 33%
Enterprise Care Functions 7,500 1,500 20%
Network Management 2,600 700 27%
Access Management 350 75 21%
Eliminates redundant function internal to SBC and leverages best-in-class capabilities and contracts of AT&T
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IT Merger Synergies
SBC has proven record of delivering IT synergies
Delivered more than $500M in annual expense savings, excluding procurement, from previous wireline acquisitions Savings came from across IT functions:
% of Total Savings
Application Development 40%
Data Center 30%
Operations Savings 10%
Desktop/OCS 10%
Other 10%
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IT Merger Synergies
IT synergies are achievable and significant
Standardization and automation
Eliminate redundant development (customer care, billing) Single application suite (network, corporate) Internal infrastructure (desktop support, help desk, OCS)
Consolidation and sourcing
Data centers
Back-office functions (bill print & ops, remittance, payroll)
Synergy assumptions for IT efficiencies do not kick in until 2009 and ultimately peak at 8% of combined workforce
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Procurement Synergies
60% overlap in vendor spend between AT&T and SBC SBC has historically netted 10%-12% in overall supplier concessions form previous transactions (Pacific Telesis, SNET and Ameritech)
Allocation of reductions has historically been in the range of 55% capex and 45% expense Synergy assumptions were set at a very conservative 5% reduction in overall procurement efficiencies
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Remaining Value Drivers
Corporate overhead headcount reductions
Estimated 2,600 reductions in Legal, HR, Finance, CRE, PR, Advertising, EA, Wholesale
LD Transport COGS reduction $200M annual reduction $75M annual International Wireless Termination reduction
Out-of-Region Facilities $50M expense, $20M capital achieved by elimination of redundant facilities
Network Lease Efficiencies
(co-located facilities, dial pop, facility lease) $67M annual lease reduction
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Summary
Operational efficiencies drive 58% of the transaction value
The combined companies have the best industry talent in local and long haul network management that will establish a new model of integrated operations Nonoperational efficiencies are largely mechanical and “time-tested” from previous transactions The targets are achievable and directly linked to operations that we control
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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
0.77942 shares of SBC for each share of AT&T ($18.41 based on 1/28/05 closing price) $1 billion
Special dividend $1.30 per share $6 billion
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 3.5% breakup fee Customary MAC provisions
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Summary of Financial Impacts
(dollars in billions, pretax) 2H06 2007 2008 2009
Synergies
Revenue (EBITDA impact) $0.0 $0.0—$0.1 $0.1—$0.2 $0.2—$0.3
Expense $0.1—$0.4 $1.0—$1.3 $1.8—$2.1 $2.0—$2.3
Capex $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
Integration costs
Expense ($1.9)—($1.6) ($1.1)—($0.8) ($0.6)—($0.3) ($0.1)—$0.0
Capital ($0.1)—$0.0 ($0.1)—$0.0 $0.0 $0.0
Total integration costs ($2.0)—($1.6) ($1.2)—($0.8) ($0.6)—($0.3) ($0.1)—$0.0
Purchase accounting1
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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Substantial Synergies
Expected Operating Synergies
(dollars in billions)
2H06 $0.2—$0.6
2007 $1.1—$1.6
2008 $2.1—$2.6
2009 $2.4—$2.9
Revenue Corporate/ Other Business Operations
Network/IT
Nearly 60% of synergies driven by headcount reductions
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Expected SBC EPS Impacts
2H06 2007 2008 2009
AT&T net 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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Sensitivity to SBC Expected EPS Impacts
Reported EPS Impacts –
Base Case $(0.31) -$(0.28) $(0.15) -$(0.12) $0.09 -$0.11 $0.23 -$0.27
2H06
2007
2008
2009
Reported EPS Impacts –25% Reduction in Base Case $(0.31) -$(0.28)
2H06 $(0.15) -$(0.18)
2007
2008
2009 $0.02 -$0.04 $0.13 -$0.17
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Incremental Cash Flow
Expected Incremental Free Cash Flow
(dollars in billions)
2H06
($0.3) – ($0.5) $1.0—$1.2
2007 $1.9—$2.1
2008
2009 $2.3—$2.5
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Financial Summary
Significant achievable synergies totaling more than $15B NPV
Incremental EPS positive starting in 2008 Incremental cash flow positive in 2007
Strong credit metrics
Increasing free cash flow supports dividend growth and share repurchase
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SBC + AT&T
A Premier Provider for a New Era of Communications
Special Analyst Meeting
Feb 1, 2005
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