SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report - October 15, 1997
(Date of earliest event reported)
GTE Corporation
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
1-2755 13-1678633
(Commission File Number) (IRS Employer Identification No.)
One Stamford Forum
Stamford, Connecticut 06904
(Address of principal executive offices) (Zip Code)
(203) 965-2000
Registrant's telephone number, including area code
GTE CORPORATION
FORM 8-K
ITEM OF INFORMATION
Item 5. Other Events
In accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, GTE Corporation ("GTE" or the
"Company") is hereby filing cautionary statements identifying important
factors that could cause the Company's actual results to differ materially
from those projected in forward-looking statements of the Company made by or
on behalf of the Company.
Forward-Looking Statements
On October 15, 1997, GTE Corporation issued a press release announcing
its proposal to acquire MCI Communications Corporation in a transaction
valued at approximately $28 billion in cash or $40 per share. GTE assumes
that such a transaction would close by the end of 1998 and would be
accounted for as a purchase with the resulting goodwill being amortized over
a 40 year period. A copy of the October 15, 1997 press release is attached
hereto as Exhibit 99.1 and is incorporated herein by reference. The
consummation of the transaction would be subject to certain conditions as
described in the press release.
Based on successful consummation of the proposed transaction at the end
of 1998, GTE estimates that earnings-per-share will be essentially flat or
slightly higher in 1997 than in 1996, will grow moderately in 1998 as
compared with 1997, will grow in the range of 8% to 10% in 1999 as compared
to 1998 and will grow at approximately 18% to 20% in 2000 and beyond.
Consolidated revenue growth will accelerate from the current 6% to 8% growth
rate to 10% to 13% by 2001. In 1999, the combined company is expected to
generate approximately $55 billion in revenue. Much of the additional
growth is expected to be driven by long distance, video and value-added data
communications and Internet-related services.
Operating income for the combined company is expected to increase to
approximately $10 billion in 1999 and grow approximately 15% per year
thereafter. GTE expects the growth in operating income to be substantially
higher than the growth in revenues. GTE expects the combined company to
benefit from cost and revenue synergies in the range of $1.6 billion to $2.0
billion in the second full year following completion of the transaction. By
the fifth year following completion of the transaction, cost and revenue
synergies are expected to grow to $2.4 billion to $3.0 billion. Cost
reductions will result from reduced general & administrative and information
technology costs, reduced costs of operation in the long distance, wireless
and wireline markets, as well as reduced costs for the combined company's
entry into new markets.
Over the longer term, GTE expects the combined company to achieve
annual reductions in capital spending in the range of $200 million to $300
million.
GTE expects that the transaction will result in a significant decline
in GTE's credit ratios in the near-term.
Risk Factors
GTE's forward-looking statements are based upon a series of projections
and estimates regarding the economy, the telecommunications industry, the
proposed transaction, the effects of federal, state and local regulations on
the industry in general and within GTE and MCI's markets, as well as key
performance indicators which will impact the combined company directly.
The projections and estimates regarding the economy relate to economic
growth, inflation, interest rates and the cost of borrowing.
The projections and estimates regarding the telecommunications industry
relate to the growth in demand for and pricing of services, the effects of
competition, the impact of universal service and other regulatory issues
affecting local competition and the success of new products, services and
new businesses such as video and value-added data communications and
Internet-related services.
The projections and estimates regarding the proposed transaction assume
the successful completion of the transaction and relate to its timing and
terms. The financial projections assume that the transaction will be
financed and closed at the end of 1998 and that the necessary regulatory
approvals will be received in a timely manner and free of terms or
conditions that would materially adversely affect the existing operations of
GTE or MCI or prohibit operation of the combined company in a manner
conducive to achieving expected cost and revenue synergies. The projections
also assume that the financing necessary to complete the transaction will be
available and at terms substantially consistent with those available today.
With regard to the effects of regulation, GTE has assumed fair and
reasonable resolutions to pending and potential federal, state and local
regulatory initiatives and proceedings, including arbitration proceedings
before various state regulatory commissions.
In developing its forward-looking statements, GTE has made certain
assumptions, in addition to the above, relating to key performance
indicators that have a direct bearing on GTE's ability to attain these
projections. These assumptions include the annual growth in telephone
access lines and minutes of use; the growth in long-distance and cellular
volumes and customers as well as the market share of the combined company in
the long-distance and wireless area; and the speed and degree of penetration
into new and expanded service offerings, such as video and value-added data
communications and Internet services. These assumptions also assume the
timely achievement by the combined company of certain revenue and cost
synergies in addition to previously expected productivity improvements at
GTE as well as the absence of disruption to the combined company's markets.
Regarding the long-distance and data markets, these assumptions rely on
assumed future growth of these markets, the ability of the combined company
to gain and expand market share, anticipated advances in technology, the
impact of competition, and the completion and integration of planned data
networks.
If future events and actual performance, including the timing, terms or
structure of the transaction, differ from that assumed for the risk factors
noted above, GTE's actual results could vary significantly from the
performance projected in the forward-looking statements.
Item 7. Financial Statements and Exhibits
(a) Financial Statements -- None.
(b) Pro Forma Financial Information -- None.
(c) Exhibits
99.1 Announcement of Proposed Merger with MCI.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GTE CORPORATION
(Registrant)
By: William M. Edwards, III
William M. Edwards, III
Vice President and Controller
Date: October 16, 1997
Exhibit 99.1
Page 1
October 15,1997
GTE CORPORATION PROPOSES MERGER WITH MCI
IN TRANSACTION VALUED AT $28 BILLION
STAMFORD, Connecticut- Charles R. Lee, Chairman and Chief Executive Officer
of GTE Corp., today sent a letter to Bert Roberts, Jr., Chairman of MCI
Communications Corporation, proposing to acquire MCI in a transaction valued
at approximately $28 billion in cash or $40.00 per share. The transaction,
one of the largest mergers ever proposed, would create an enterprise with
more than $40 billion of combined revenues, more than 21 million local lines
and more than 24 million long-distance lines, significant positions in every
key area of the telecommunications market, and a long-standing and
continuing commitment to bringing the benefits of telecommunications on a
highly competitive basis to a broad spectrum of residential and business
customers. The transaction would also bring an important relationship with
British Telecommunications plc and BT's vision of global telecommunications,
which GTE shares.
The full text of Mr. Lee's letter to Mr. Roberts follows:
October 15, 1997
Mr. Bert C. Roberts, Jr.
Chairman
MCI Communications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, DC 20006
Dear Bert:
You and I have talked over the years about the advantages of bringing our
two great companies closer together. We both supported the historic
Telecommunications Act of 1996, which was designed to sweep away the
antiquated separation of markets by geographic and product-line boundaries
and to empower companies to bring robust competition to all
telecommunications markets. As I survey our industry today, I am more
convinced than ever that the combination of our companies would serve the
best interests of our shareholders, employees, business partners, and
communities, and would achieve the vision of the Telecommunications Act by
creating a dynamic competitive force capable of bringing the benefits of
competition to all markets and all customers, both nationally and globally.
I am pleased, therefore, to propose that we combine GTE and MCI.
Specifically, we are offering $40.00 in cash per share of MCI stock. We
would propose, immediately upon execution of a definitive merger agreement,
to launch a cash tender offer for the MCI shares. To expedite delivery of
consideration to your shareholders, the shares would be accepted for
payment, and deposited in a voting trust, upon the receipt of
Hart-Scott-Rodino and European antitrust approvals. We would acquire the
balance of the shares through a merger which we would be prepared to close
as soon as possible following the consummation of the tender offer.
Exhibit 99.1
Page 2
I would like to meet with you as soon as possible and am looking forward to
negotiating the contemplated Merger Agreement expeditiously. To facilitate
discussions, a draft agreement is being forwarded to you under separate
cover. Of course, we recognize that any discussions must be consistent with
any legal restrictions you are under. Because I believe so strongly in the
opportunities for our combined enterprise, I am willing to explore, as an
alternative to all cash, a combination of cash and stock as payment for MCI
shares.
We should explore how we can best combine our outstanding teams of
employees. I, and our senior team at GTE, would look forward to working
with you to develop a management structure for the new organization that
includes you, your senior leadership and others in your organization. We
have respect and admiration for the very special culture of your
organization and are intent on ensuring that it thrives within the new
organization. In that regard, I would hope that upon completion of our
transaction, you would become a member of the new organization's Board of
Directors as a Vice Chairman, as well as joining Kent Foster, Mike Masin and
me in the Office of the Chairman. I, and the other directors, would also
hope you would join our Board's strategic planning committee. We, of
course, are open to the possibility of other members of your Board joining
the new organization's Board. In recognition of the importance to our new
organization of MCI, its management and its outstanding workforce, we intend
the World Headquarters of the combined organization to be located in
Washington, DC in conjunction with MCI's current World Headquarters.
The logic and vision of this merger are compelling. The combined enterprise
would be well-positioned to compete and grow by offering the broadest range
of products and services worldwide. It would generate over $40 billion of
annual revenues; serve more than 21 million local and 24 million
long-distance lines, and 5 million wireless customers; have a global
presence in 77 countries; possess one of the world's most advanced global
data communications networks; and be led by a combined management team and
workforce second to none in our industry. Together, the outstanding
talents, capabilities and shared values of our two companies would create a
dynamic competitive force in the growing number of markets we serve.
As you know, GTE is committed to pursuit of the promise of the
Telecommunications Act. We have entered the long-distance market as a
reseller. Recently, we created a competitive local exchange carrier
business largely in an effort to attack and compete with the RBOCs in their
service areas. Last May, we announced a series of steps to position GTE as
a market leader in data communications, the fastest-growing segment of the
telecommunications marketplace. These steps included acquiring BBN, a
leading provider of end-to-end Internet solutions; establishing a strategic
alliance with Cisco to jointly develop enhanced data and Internet services;
and purchasing a national, state-of-the-art fiber optic network from Qwest.
To serve international markets, we have increased our stake in the Americas
and established a significant presence in Asia.
Together, we can achieve the promise of the Telecommunications Act. The fit
between our companies is truly extraordinary. Indeed, no two companies in
the industry today are more complementary or better situated to expand the
availability and breadth of bundled service offerings to local, national and
international customers, and to penetrate those markets previously closed to
us. GTE would bring to the new company a local exchange business, including
operational expertise and a national, though dispersed, footprint, that
provides an ideal platform from which the combined company can launch
Exhibit 99.1
Page 3
competitive facilities-based service to compete with the RBOCs. In
addition, GTE would bring to the combination one of the nation's largest
wireless operations. MCI has demonstrated prowess and retailing acumen in
long distance and in serving the needs of large multinational business
customers. Moreover, the companies together can pursue aggressive,
innovative strategies for the data marketplace and begin competing in
earnest for RBOC customers.
Both companies are committed to the global market. GTE currently has a
presence in 21 countries in four regions, and derives 15 percent of its net
income from its international business. MCI also has a significant global
presence. We share the global vision of our industry that brought MCI and
British Telecom together and look forward to discussing with you the
continued development of that relationship within the context of this
proposal. In fact, realizing the growth opportunities represented by the
international marketplace would be another of our top strategic priorities,
including continuing to work closely with our respective international
partners.
There are additional important aspects to combining our two companies that
also serve the public interest while enhancing shareholder value. Together,
for example, we would have the wherewithal to make the investments in
infrastructure necessary to foster innovation and job creation in our
industry. We would deploy and operate the advanced high-speed network
infrastructures encouraged by the architects of the Telecommunications Act.
These networks would provide the solid foundation upon which a wide range of
entrepreneurial competitors will build their services. In fact, the
combined company would invest more than $8.5 billion annually in network
deployment. The benefits of these investments would accrue to all of our
combined and prospective customers. Our respective track records
demonstrate that we have always been committed to providing all of our
services universally. That commitment will not change. Indeed, combining
MCI and GTE would enhance our ability to fulfill it.
Our two companies, having both emerged outside the dominant AT&T/RBOC
structure, believe strongly in the public benefits of vigorous and fair
competition, and the transaction we propose is clearly pro-competitive. It
would clearly create, in both scale and scope, the most substantial
facilities-based competitive alternative to the RBOCs and bring to customers
a full complement of communications services, including local, long
distance, wireless, Internet applications and video.
In addition, the merger of our two companies would result in significantly
enhanced operating efficiency as well as new revenue opportunities as we
respond to consumer preference for a complete array of products and
services.
For these reasons, our legal advisors believe that we will be able to obtain
the regulatory approvals necessary to consummate this transaction. We have
been further informed by our financial advisors that any financing required
to complete the transaction would be readily available. Thus, we intend to
consummate this transaction in the same time frame as contemplated in the
WorldCom proposal.
Exhibit 99.1
Page 4
In short, Bert, my colleagues and I at GTE believe very strongly that a
merger of MCI and GTE is in the best interests of all of our respective
shareholders, customers, employees, and business partners. It would unite
two of the world's great telecommunications companies under a single roof
while creating significant long-term value for all of our constituencies. I
am personally very excited about this proposal _ which we are prepared to
discuss with you in detail immediately _ and I'm confident that after you
have reviewed it, you and your colleagues will fully share that enthusiasm.
Sincerely,
Charles R. Lee
