SBC agrees to buy AT&T for $16bn

US phone company SBC Communications has agreed to buy its former parent AT&T for about $16bn (£8.5bn).

The deal first emerged in rumours last week, and will be financed with $15bn of shares as well as a $1bn special dividend paid to AT&T shareholders.

It effectively marks the end of AT&T, which was founded in 1875 by telephone inventor Alexander Graham Bell and is one of the US's best-known companies.

SBC and AT&T said that cost savings were a main driver for the merger.

Dovetailing

AT&T is a long-distance telecoms firm, while SBC is mainly focused on the local market in the western US. Both also have data network businesses.

"The communications industry is undergoing a profound transformation," said Edward Whitacre, SBC's chief executive and the man who will head the new company.

Following the merger, the companies will have "the intellectual and financial resources to spur innovation and propel America's communications industry forward", he continued.

The companies said they expect annual cost savings of at least $2bn from 2008.

AT&T investors will receive 0.78 SBC shares for each of their AT&T shares. They will also get a special dividend payment of $1.30 per share.