The recent merger activity involving second-tier cellular companies has touched off speculation about which companies may be next to tie the knot.
Alltel Corp. and 3600 Communications Co. last week announced they will merge in a transaction valued at more than $6 billion. Just a week earlier, PriCellular Corp. announced it agreed to be acquired by American Cellular Corp., a group of institutional investors, for about $1.4 billion. Vanguard Cellular Systems Inc. recently agreed to sell its properties in Myrtle Beach, S.C., and Wilmington-Jacksonville, N.C.
Speculation that British Telecommunications plc is in talks with several U.S. telecommunications companies about possible deals also surfaced last week. And talk that a combined WorldCom Inc. and MCI Communications Corp.-the companies whose merger announcement last fall seemed to spark the recent flurry of M&A activity-could be looking for a large wireless partner, also hit the rumor mill.
Several analysts speculated that WorldCom/MCI would look at acquiring Nextel Communications Inc. or a combination of several personal communications services carriers that use Global System for Mobile communications technology. A marriage of WorldCom/MCI and Nextel makes sense, they say, because the companies have a similar focus on business customers, and because Nextel would offer WorldCom/MCI a nationwide wireless play.
“If they do buy someone, we think it will be Nextel,” said Dr. Judy Reed Smith, chief executive officer of Atlantic-ACM. “If you look at their range of services, wireless is the missing piece.”
Other analysts, however, say Nextel’s spectrum is limited, and a combination of GSM carriers would afford the combined company more spectrum and greater flexibility. In any case, WorldCom and MCI may have to wait until their merger is completed before making any purchases, a process that may be slowed by objections from several groups.
“MCI has been noticeably negligent in doing its wireless work,” said industry analyst Herschel Shosteck. “They bought Nationwide as a reseller, and that has turned out to be a strategic marketing travesty.”
A combination with Nextel “would be either an extremely myopic or a brilliant choice,” said Shosteck, who noted that Nextel may not be able to do as much as it claims it can. A tie-up between the two, he said, would require a handset that supports both analog and integrated Digital Enhanced Network technologies.
Bernie Ebbers, president and CEO of WorldCom, however, historically has been cool on the idea of wireless, say analysts, and he has stated the combined company has no immediate plans to seek a wireless partner.
The pressure may be on carriers to act quickly if they want to purchase a valuable piece of property, comment analysts. Signs in car dealerships proclaiming that, “The same car you looked at today and will come back to purchase tomorrow is the same car someone else looked at yesterday and is coming back to buy today,” aptly describes the type of pressure carriers feel to buy before someone else does.
“There seems to be an accelerated demand for communications properties,” said Danny Adams, a partner with Kelley Drye and Warren L.L.P. “As each of these deals happen, there’s a marketplace perception that there is one less thing available if you were thinking about buying.
“There’s a feeling that if you have plans to acquire someone, you better do it quickly because it might be gone soon,” continued Adams, who said the two main reasons to purchase a company are to fill in a piece of a strategic plan or because the property is a good portfolio addition.
Carriers in second-tier markets are experiencing tremendous growth in the absence of competition, say analysts. Stock prices for those companies are on the rise, increasing shareholder value and giving the companies’ management a reason to cash out while values are soaring.
“What makes the largest of the small attractive is that they can fill out a footprint in secondary markets where not much competition exists,” said Shosteck, who contends that consolidation eventually will lead to a handful of large, global carriers.
The second-tier cellular companies named as possible merger or acquisition candidates include Vanguard, Centennial Cellular, CommNet Cellular Inc., Century Cellunet Inc. and Frontier Cellular. Independent PCS companies, such as Western Wireless and Omnipoint Communications Inc., also were mentioned. Western Wireless also has cellular properties.
David Kerr, director of wireless programs at Strategy Analytics, said he thinks rather than large domestic carriers doing the buying, more second-tier companies will pair up, and more combinations with utility companies will occur. In addition, Kerr said he expects more foreign investments will come into the United States.
“There are a lot of small companies that will get a lot of money,” said one analyst. “It’s a good time to be a well-run, smaller company, because they will have a good opportunity to cash out now.”
