AT&T Inc.’s (T) much-anticipated acquisition of Centennial Communications Corp. (CYCL), a regional wireless and wireline service provider, has been pushed back to the third quarter. The deal, originally set to close by the second quarter of 2009, is still under regulatory assessment and other procedures.
On November 7, 2008, AT&T announced its acquisition of Centennial for approximately $2.8 billion (including net debt). As per the agreement, shareholders of Centennial will receive $8.50 in cash for each stock they own, amounting to approximately $944 million.
In February 2009, the shareholders of Centennial unanimously approved the acquisition, which is now subject to regulatory clearances of the Department of Justice and Federal Communications Commission. AT&T expects minimal dilution to earnings and cash flow in the first year following the close of the transaction.
With the purchase of Alltel Wireless Corp in early 2009, Verizon (VZ) surpassed AT&T as the largest wireless carrier in North America, serving 86.6 million customers based on the latest quarterly statistics. As such, AT&T is increasingly focusing on acquisitions to expand its subscriber base and coverage zones as the US subscriber population reaches maturity.
The impending acquisition of Centennial will broaden the company’s wireless coverage markets to include rural areas of the Midwest and Southeast regions of the U.S. as well as Puerto Rico and the US Virgin Islands, providing the company 1.1 million new subscribers. Additionally, the deal will offer operational synergies and improved service quality of AT&T’s wireless network in specific markets.
The upcoming takeover of Centennial, although vital for the company, may negatively impact its balance sheet as resources spent on the purchase will limit debt repayments. In addition, some of the acquired network assets, such as Centennial’s operations in Puerto Rico, are not yet compatible with AT&T’s GSM based wireless architecture. This may result in additional expenditure to migrate cellular users to a common network technology platform. That said, we maintain our Hold recommendation for AT&T.
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