Craig McCaw boarded a plane last Friday, wondering if the biggest deal of his life was headed for collapse.
The shy, enigmatic founder and chief executive of McCaw Cellular Communications tentatively had agreed last November to sell one-third of his company to American Telephone & Telegraph Co. for $3.8 billion.
For months, Craig McCaw's deputies had struggled to work through details of the deal. How would revenues be split? What about areas where they would be competing? Would McCaw use discounts on long distance granted by AT&T to undercut AT&T's sales force? How should they structure a 99-year lease by McCaw of the AT&T brand name?
No one could come up with workable answers. Another chief executive, Robert Allen of AT&T, was flying into New York that day, also wanting to save the deal.
Allen had spent a week in China, where he was astounded at the opportunities to sell telecommunication services, especially cellular networks, which cheaply leapfrogged old wired networks.
For Allen,whose quiet personality matched McCaw's, the trip was another reminder of why AT&T needed a wireless division. For that, he wanted the biggest cellular company in the U.S. - Kirkland's McCaw Cellular. But he, too, knew the deal was in trouble. Assisted by platoons of lawyers, investment bankers, publicists and others, a jet-lagged Allen and McCaw met and talked.
What emerged yesterday was an even bigger deal, a proposed transaction that made headlines on both sides of the Atlantic and will boost the wealth of thousands of McCaw shareholders, not the least of which are the McCaw brothers - Bruce, Craig, John and Keith.
Acting on AT&T's suggestion, Craig McCaw, 44, agreed to sell his company to AT&T for $12.6 billion worth of AT&T stock, one of the largest friendly takeovers in U.S. history. For tax reasons, the stock swap was being characterized as a merger, a "pooling of interests," but the effect was a buyout, which is subject to regulatory approval.
Craig McCaw, one of the most savvy deal makers in business today, had done it again.
But on Friday, his staff had been prepared for the worst.
His vice president for communications, Bob Ratliffe, had traveled to New York with two plans for publicizing the final deal: one praising a revived deal with AT&T, another singing the virtues of independence.
There were good reasons to junk the November deal. McCaw President James Barksdale insisted it wouldn't work because the relationship between AT&T and McCaw was convoluted and complex. He'd need a lawyer in every company office to explain right from wrong, he said. He had a single instruction for people meeting with AT&T. Find something he and others can understand.
"If you can't put it on one piece of paper, you can't execute," he said.
Craig McCaw and Allen met Saturday morning, largely alone for four hours. As they met, the McCaw board arrived in New York from Seattle, Boston and elsewhere. The 16-person group included John McCaw, Bruce McCaw, former Sen. Dan Evans, investor and QFC Chief Executive Stuart Sloan, John Stanton of General Cellular Corp. and John Giuggio of the group that owned the Boston Globe.
By 7 p.m., McCaw and Allen shook hands in the hallway of the Waldorf Astoria Hotel. Then McCaw spoke to the McCaw board.
"We have reached agreement," McCaw told the board, according to Ratliffe. "Obviously, they think this is a good business and they're willing to pay for it."
Executive Vice President Tom Alberg, a member of McCaw's "deal team," also briefed the board. Other team members were Vice Chairman Wayne Perry and Senior Vice Presidents Roberta Katz and Andrew Quartner.
There were questions, none showing resistance to the deal, but some probing for weak points. Is this the right way to go?
There also was a bittersweet feeling at the meeting, especially for longtimers like Bruce and John McCaw, who had been with Craig McCaw since the company's early days as a cable-TV company in Centralia, the sole survivor of the estate of their father, Elroy McCaw. Letting go of the company would be hard. But the benefits of the McCaw organization being backed by powerful AT&T were obvious. A few compared their feelings about the deal to a father giving away a daughter in marriage. In this instance, they felt comfortable about the suitor, who promised to not kill the renegade spirit that had made the McCaw organization a success.
"I trust him," Barksdale said later of Allen.
Someone pointed out a missing ingredient. Unlike the November deal, this one gave no special considerations to the McCaw brothers, whose shares gave them voting control of the company. The November deal had offered the McCaws and other insiders $100 million, plus another $600 million if AT&T decided to exercise an option to buy control later.
This time there were no extra sweeteners. Craig McCaw had decided he wanted the deal with Allen to be simple, with no side deals for his family.
"Jimminy Christmas," Harold Eastman, a director, told the group. "Can you believe he's doing this?"
Whether McCaw was acting out of a sense of personal sacrifice, his family still benefited handsomely as the company's largest shareholders.
As a group, they hold 47.51 million shares of McCaw stock. If those shares had been swapped last Friday for AT&T stock, each share would have gained $11.12. That would have been a $528.2 million gain for the McCaw family, or $185 million for Craig McCaw alone.
McCaw and AT&T have not said what date will be used for swapping the stock. A formula sets a ceiling and floor for each company's stock. McCaw closed yesterday at $56.25, up $5 and AT&T at $60.75, down $1.625.
Then there's another benefit for shareholders, AT&T's annual dividend of roughly $1.20 for each share. Assuming AT&T has typical years in the future, the McCaws can expect annual income of some $57 million.
The Saturday board meeting moved on to other topics.
Investment bankers, lawyers and others offered technical advice. Giuggio, director of Affiliated Publications, owner of The Boston Globe, was feeling weak from poor health.
From his perspective, Craig McCaw was a genius. Starting in 1981 with an initial investment of $12 million, Affiliated's stake of $85 million grew in value to some $2 billion.
"I can't believe the company we bought into 10 years ago for $12 million now is selling for $12 billion," said Giuggio, according to Ratliffe.
He rose to leave.
Leaving the discussion of the multibillion-dollar deal, Craig McCaw walked over to help Giuggio with his coat, opened the door and walked him to the elevator.
McCaw and the board sent out for pizza and Chinese food and talked past midnight. He did not reveal his future plans other than to serve on AT&T's board, follow his vision of the future and be "a player," which he left vague. Nothing in the deal with Allen will keep him out of telecommunications.
The following day, the AT&T and McCaw boards met separately and approved the deal.
Monday, 9 a.m. London time, the board of British Telecom, a major shareholder in McCaw, gave its approval. All that was left was to tell the world. Craig McCaw and Allen were scheduled to speak at a news conference at AT&T headquarters with reporters from The Wall Street Journal, The Washington Post, CNN and other organizations.
Leaving his hotel, Craig McCaw stopped short. "I can't find my room key," he said, jostling his pockets.
Ratliffe, pointing out that McCaw executives were longtime customers of the Lowell, offered a solution to the only difficulty remaining in New York. "I think we can mail it to them," Ratliffe said.
----------------------------------------------- Details of deal
-- The deal: McCaw Cellular Communications Inc. will merge with American Telephone & Telegraph Co. in a $12.6 billion stock swap combining the leaders in long-distance and wireless phone service.
-- The players: McCaw Cellular provides cellular telephone, paging and personal communications services, plus wireless data transmission, air-to-ground, land satellite, voice and data communications.
McCaw had 1992 revenues of $1.74 billion, including revenues from LIN Broadcasting Corp., which is 52 percent owned by McCaw. McCaw has assets of $9.2 billion and 4,400 employees. LIN has 1,900 employees.
AT&T had 1992 revenues of $64.9 billion and assets, as of June 1993, of $57.8 billion. The global communications and computer company, which has headquarters in New York, has about 2.4 million shareowners and 316,000 employees.
-- What it means: The merger will allow AT&T to forge a direct link with phone customers for the first time since the 1984 breakup of its former Bell System monopoly.
It also enables McCaw to sell wireless services and products under AT&T's brand name and to use the powerful resources of Bell Laboratories.