$640M deal includes Sprint reworking affiliate agreements, plans to bolster LTE
The regional telecommunications market is set to lose one of its players as Shenandoah Telecommunications announced plans to acquire Ntelos Holdings for approximately $640 million.
The deal, which had been rumored for months, will combine a pair of Sprint network affiliates that has led to a new agreement between Shenandoah and Sprint.
Financials on the proposed transaction call for Ntelos shareholders to receive $9.25 per share, which Shenandoah said is a 60% premium over Ntelos’ average price over the past 30 days. Shenandoah, which operates under the Shentel brand, will also take over Ntelos’ $431 million net debt as part of the deal. The deal has been approved by both companies, with Shenandoah predicting a close early next year.
The deal is set to bolster Shentel’s mobile operations in parts of Virginia and West Virginia, where both companies provide services. The proposed deal is not expected to have any impact on Ntelos’ previously announced plans to shutter its “eastern” operations, which is still expected to be completed by November.
The transaction is also set to bring a quick close to Ntelos’ operations that have seen a number of dramatic changes over the past year. Ntelos signaled a change of direction last summer when long-time CEO James Hyde left the company just as the carrier posted mixed second-quarter financial results. Hyde had overseen dramatic moves by the company, including its decision in late 2010 to split up its wireline and wireless divisions.
The regional operator earlier this year closed on the $56 million sale of 1.9 GHz spectrum licenses covering around 55 million potential customers to T-Mobile US, which Ntelos used to state a new focus on its “western” operations. The deal calls for Ntelos to lease back a portion of the spectrum sold to T-Mobile US in a move to continue serving customers in its eastern footprint through November, at which point the carrier said it will shut down those operations. The decommissioning of services is set to include the closing of retail operations and transfer of approximately 180,000 current subscribers in those markets to “another carrier.”
“We are exiting markets that have become increasingly competitive and where we have been unable to achieve acceptable financial returns,” Ntelos Chairman Michael Huber explained at the time. “Focusing on our western markets, where we benefit from a strong branded retail presence and access to multiband spectrum in the (Sprint agreement) territory, will allow us to make additional investments to improve the experience of our customers. We believe these investments will enable us to increase our market share, ultimately leading to greater operating efficiency and profitability. The initiatives we announced today improve the strategic coherence of our business as well as enhance our ability to seek opportunities to leverage our strategic assets as we build out our LTE network.”
Ntelos earlier this year also announced a deal to sell up to 103 towers for $41 million to an affiliate of private-equity firm Grain Management. The deal also called for Ntelos to enter into a lease agreement to continue accessing those towers to serve its western markets.
Ntelos late last month reported second-quarter financial results that showed some operational benefits from its focus shift, though the company was still plagued by financial challenges.
Sprint moves on consolidation
In light of the announcement, Sprint said it amended its affiliate agreement and entered into several new agreements with Shentel that will see cash, customers, network assets and spectrum change hands that will result in Sprint paying Shentel up to $252 million over the next five to six years.
Should Shentel close on the proposed Ntelos deal, Sprint will receive Ntelos spectrum assets covering 5.4 million potential customers in parts of Virginia, West Virginia, Pennsylvania, Maryland, Ohio, Kentucky and North Carolina. Shentel, which will terminate the existing network wholesale agreements between Sprint and Ntelos, has pledged to continue LTE upgrades to the Ntelos network and expand coverage with at least an additional 150 sites over the next three years, using spectrum acquired by Sprint and made available to Shentel as part of the transaction. Those spectrum assets are to include Sprint’s 2.5 GHz spectrum holdings in Shentel’s footprint, which are central to Sprint’s planned updates to its LTE service.
Shentel in 2012 secured a deal with Sprint to bolster its network with LTE technology and spectrum assets in the 1.9 GHz and 800 MHz band received from Sprint. The new deal also extends that affiliate agreement between Sprint and Shentel an additional five years to 2029.
Sprint also said it plans convert its approximately 291,000 customers in the Shentel markets to “Sprint-branded affiliate customers” with 8,000 Ntelos customers “converted into Sprint-branded retail customers.” Sprint said it would also look to transition its existing retail wireless operations within Ntelos’ markets to Shentel.
Despite the expected financial outlay, Sprint said the deal will have a positive impact on earnings before interest, taxes, depreciation and amortization in the first year after close.
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