NEW YORK-Centennial Cellular Corp., New Canaan, Conn., announced the company is considering its options, including selling some or all of its assets.
The company, a cellular carrier on the United States mainland and a personal communications services carrier in Puerto Rico, said its board of directors has retained Donaldson, Lufkin & Jenrette Securities Corp., New York, to “assist in exploring these various available strategic alternatives.”
Centennial’s stock price climbed to a 52-week high on the news April 14, then closed at $31.13, up $6.25.
The wireless carrier’s voting stock is approximately 74-percent controlled by Century Communications Corp., a cable TV company whose fiber-optic lines provide backhaul for Centennial’s PCS network in Puerto Rico. Many of the board members and executives of Century and Centennial are the same people. Additionally, Citizens Utility Co. controls about 17 percent of Centennial’s voting stock.
Since August, Centennial has embarked on a stock repurchase program. Asked in February if Centennial planned to transform itself into a privately held company, Bernard B. Gallagher, chairman and chief executive officer of Centennial and president and chief operating officer of Century, offered this response: “It is possible, given the fact that we believe our shares are undervalued, that we could continue to buy back our stock.”
Jennifer A. Murtaugh, a vice president of Everen Securities Inc., Chicago, said the public capital markets haven’t acknowledged Centennial for “its solid [average revenue per subscriber] and great growth.
“This is a really good time to be selling cellular markets because private market values, which are good indicators, are substantially above those in the public markets,” she said.
Recently announced sales in the wireless sector have come in at good multiples of cash flow, Murtaugh added. For example, she cited the sale by Vanguard Cellular Systems Inc. of two markets in the Carolinas to Triton PCS Inc. and United States Cellular Corp.; the sale of 3607 Communications Co. to Alltel Mobile Communications Inc.; and American Cellular Corp.’s purchase of PriCellular Corp.
Brian G. Coleman, a director of Toronto Dominion Securities (USA) Inc., New York, said he believes Centennial will announce a decision within the next three months whether to sell the entire company or some of the domestic properties in which it holds a minority interest.
Late last year, Centennial said it planned to divest itself of minority equity interests in cellular properties covering a population of 1.1 million. Most of these are in California’s Sacramento Valley, where AirTouch Communications Inc. has majority and operational control and is therefore the likely buyer, Coleman said.
“Centennial’s core domestic cellular business could find buyers among a host of companies in addition to AirTouch … [its] footprint would appear to offer an attractive complement to [those] of Alltel, Ameritech (Cellular Services), AT&T Wireless (Inc.) and SBC Communications (Inc.), each of which owns adjacent properties with minimal overlap.”
If Centennial were to sell only its domestic assets, which have a low-cost basis, “the tax implications … may make a partial sale prohibitive,” he added.
Centennial announced its intentions in conjunction with the release of results for the third quarter and the nine months ending Feb. 28. Although the company posted increases in operating income, revenue and subscribers, it also reported higher net losses for the third quarter and the first three quarters compared with the same periods a year earlier.
Total revenue for the quarter was $59.18 million, a 51.1-percent increase from the third quarter of fiscal 1997. Total revenue for the first three quarters was $171.17 million, a 60.1-percent increase from the same period a year ago.
Third quarter 1998 operating income before depreciation and amortization was $21.5 million, a 63.7-percent increase compared with third quarter 1997. For the first nine months of the current fiscal year, Centennial reported operating income of $66.78 million, up 56 percent from the same period in fiscal 1997.
The net loss for the nine months ended Feb. 28 was $26.08 million, up from $21.71 million for the same period a year earlier. After dividends payable on preferred stock, Centennial posted a loss per common share during the latest three quarters of $1.46, up from $1.25 a year ago.
During the third quarter of this fiscal year, the carrier reported a net loss of $9.67 million, up from $9.49 million a year earlier, and 54 cents per common share, up from 50 cents, after dividends payable on preferred stock.
At the same time, Centennial’s subscriber base increased by nearly 63 percent, to 298,500, during the first nine months of its current fiscal year. Some 29,900 new customers, accounting for just more than 11 percentage points of the third-quarter increase of 63 percent, were added during the third quarter.
On the mainland United States, the company said it added 61,400 cellular customers, a 34.8-percent increase, “due primarily to internal growth.” Of these new customers, 20,000 were added during the third quarter of fiscal 1998.
Centennial de Puerto Rico, which launched PCS service in December 1996, closed out the first three quarters with 60,600 subscribers, up from 6,900 in February, 1997. The new additions on the island comprised about 47 percentage points of Centennial’s subscriber growth during this period.
Some 9,900 of these new Puerto Rico customers were added during the latest complete quarter, accounting for 19.5 percentage points of Centennial’s third-quarter subscriber increase.
