Editor’s Note: The following information is a Smith Barney Inc. analysis released April 28. From time to time, RCR plans to print investment opinions and summaries about publicly traded telecommunications companies as a service to its readers.
Dial Page Inc. recently reported its first quarter 1995 results. For the quarter, consolidated revenue was $5.3 million vs. $346,000 in the same quarter last year. Consolidated operating cash flow loss was $6.3 million vs. $1.8 million at the same time in 1994. Net loss for the quarter was $43 million, or $2.12 per share, vs. a first quarter 1994 net loss of $5.1 million, or $0.55 per share. Net loss from continuing operations last quarter was $40 million, or $1.97 per share, vs. $3.6 million, or $0.39 per share, one year ago. The loss from discontinued operations was $3.1 million, or $0.15 per share, in the first quarter vs. $1.5 million, or $0.16 per share, one year ago.
The analyst’s opinion for this stock is neutral, speculative.
Subscriber growth: At this point, Dial Page’s primary customer base is its paging and analog dispatch, or specialized mobile radio, subscribers. At March 31, Dial Page increased its subscriber base by 4 percent year over year to reach 338,179 pagers in service. Dial Page also has 59,000 analog dispatch customers. Average revenue per unit in first quarter 1995 for paging was $20.56, a decrease of 11 percent from first quarter 1994 average revenue per unit of $23.03. The decline is attributable to increased competition and the lower average revenue per unit of pagers sold through retail distribution.
Paging results: For the quarter, operating cash flow from the paging division improved 19 percent to reach $6.6 million from first quarter 1994 levels of $5.5 million. The paging division cash flow, at this point, is the primary contributor to the company’s consolidated operating cash flow. Paging results continue to improve as Dial Page adds more alphanumeric pagers to its customer base. At the end of the first quarter, alpha pagers accounted for 17 percent of Dial Page’s subscribers. The alpha pagers enable the company’s average revenue per unit of $20.56 to exceed the industry average of approximately $11 to $12 per pager.
Dial Call: SMR revenues increased to $5.3 million for the quarter on a customer base of 59,000. Operating costs for Dial Call were $11.5 million for the quarter vs. $2.2 million one year ago, indicative of the high costs associated with the construction of Dial Call’s digital network.
Balance sheet: Long-term debt as of March 31, was $407 million.
Update on digital buildout: Construction of the digital enhanced SMR network is progressing according to plan with commercial service scheduled to begin in the second quarter 1995 in Atlanta, Birmingham, Raleigh, Greensboro, Charlotte and Greenville/Spartanburg. On Dec. 6, 1993, the first digital interconnect and dispatch call was placed on the system.
Agreement with Nextel: After a long period with only a letter of intent, Dial Page announced on Feb. 21 that it had signed a definitive agreement to merge with Nextel Communications Inc. (OTC-$16) in a tax-free transaction. While the terms are unchanged from the original July 25, 1993, announcement, the agreement is more airtight in its protection of Dial Page shareholders, by placing conditions on consummation.
These conditions include the following: 1) stockholder and regulatory approvals; 2) consummation of Nextel’s acquisition of Motorola Inc.’s (NYSE-$58) SMR properties; 3) Nextel’s ability to refinance Dial Page’s paging debt if the paging business has not been sold at the time of the merger; 4) delivery of a specified number of channels by Dial Page; 5) satisfaction of conditions relating to Dial Page debt; and 6) debt covenants.
Under the terms of the agreement with Nextel, Dial Page stockholders will receive 1.0704 shares of Nextel stock for each Dial Page share outstanding at the time of the merger. There are currently 20.3 million Dial Page shares outstanding. Nextel will also assume outstanding Dial Page warrants and options. Fully diluted shares are estimated at 26 million. Dial Page shareholders could receive additional Nextel shares if the net proceeds from a paging sale exceed $65 million, which we believe to be unlikely.
Sale of the paging assets: Simultaneous with its definitive agreement, Dial Page also announced that it had entered into an agreement to sell its paging assets to MobileMedia Communications. The agreement with MobileMedia is valued at $188.5 million, which consists of $103.5 million cash and $85 million in debt (the 12.25 percent senior notes). Net proceeds to Dial Page are estimated at $61.5 million, which assumes that either Dial Page repays the debt or MobileMedia refinances the $42 million under Dial Pages’s paging credit facility. Since the net proceeds of the paging sale of $61.5 million are less than the conditional $65 million figure set by Nextel (see above), we do not expect this value to be transferred to Dial Page shareholders. Consummation of the agreement, similar to other paging asset sales, is conditioned upon satisfaction of certain operating targets, approval by the stockholders of Dial Page and receipt of regulatory approvals. The sale is not conditional on consummation of the Nextel merger. At this point, we have no reason to believe that the transaction will not close.
Floating target price: Assuming the aforementioned exchange ratio does not change, Dial Page will have a floating target price based on movement of Nextel’s stock. The following illustrates the appropriate target price for Dial Page based on changes in Nextel’s price, assuming the aforementioned exchange ratio.
If Nextel’s stock price is $10, Dial Page will have an implied market value of $280 and an implied market value per share of $11. If Nextel’s stock price is $15, Dial Page will have an implied market value of $420 and an implied market value per share of $16. If Nextel’s stock is $25, Dial Page will have an implied market value of $700 and an implied market value per share of $27.
