AT&T Inc’s (T) much anticipated acquisition of regional wireless and wireline service provider Centennial Communications Corp (CYCL), has progressed a step further as the US wireless giant has reportedly received a conditional approval of the US Department of Justice (“DOJ”).
The acquisition is now subject to the approval of the US telecom regulator Federal Communications Commission. The US antitrust approval is based on fulfillment of specific conditions which requires AT&T to divest certain Centennial assets in eight markets across Louisiana (central and southern) and southwestern Mississippi .
This is due to the fact that the acquisition may potentially hurt consumer interest in these regions. As part of this requirement, AT&T has already committed to sell wireless assets in five of the eight markets to its rival operator Verizon (VZ) for $240 million. AT&T announced its acquisition of Centennial for approximately $2.8 billion (including net debt) in November 2008.
As per the agreement term, shareholders of Centennial are expected to receive $8.50 in cash for every share they own, equating to approximately $944 million. The transaction, which was originally set to close by second-quarter 2009, is now expected to conclude in fourth-quarter 2009.
AT&T is increasingly focused on acquisitions in order to expand its subscriber base and coverage zones as the US subscriber population reaches maturity. The company was dethroned by Verizon as the largest wireless carrier in North America in early 2009 with the latter’s acquisition of Alltel Corp.
Consolidation binge among the top-tier US carrier continues as Deutsche Telekom (DT) is reportedly considering the merger of T-mobile USA , its US subsidiary, with Sprint Nextel (S). As such, the Centennial deal represents an ideal opportunity for AT&T to stay in competition.
Successful acquisition of Centennial will expand AT&T’s wireless coverage to include the rural areas of the Midwest and Southeast regions of the US as well as Puerto Rico and the US Virgin Islands, providing 1.1 million new subscribers. Additionally, the acquisition will offer operational synergies and improve the service quality of AT&T’s wireless network in specific markets.
However, AT&T is expected to face integration problems as Centennial’s CDMA technology based wireless operation in Puerto Rico is not yet compatible with AT&T’s GSM wireless architecture which may result in added costs for migrating cellular users to a uniform network platform.
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