AT&T to buy rural phone co Centennial for $944 mln

By Tiffany Wu

NEW YORK (Reuters) - AT&T Inc (T.N) plans to buy rural phone company Centennial Communications Corp (CYCL.O) for $944 million in cash to expand its wireless network in Puerto Rico and other regions of the United States.

The deal, which the two companies announced on Friday, comes amid a wave of mergers in the rural telecoms industry, which is struggling with slower wireless growth and declining home phone lines in a weak economy.

AT&T agreed to pay Centennial shareholders $8.50 per share, more than double the company's closing price of $3.84 on the Nasdaq on Friday. A year ago, Centennial was trading at around $10.

"I'm surprised to see a deal in this economic climate. But on the other hand, AT&T is using cash on hand and taking advantage of the significant decline in asset prices," said Michael Nelson, a wireless analyst at Stanford Group.

"This is one of the few rural wireless assets left. Perhaps it was inevitable," he added.

Centennial has 1.1 million wireless subscribers, of which about 40 percent are in Puerto Rico, where it has a market penetration of about 11 percent. It also has about 596,700 access lines for business customers in Puerto Rico.

"The transaction will enhance AT&T's wireless coverage for customers in largely rural areas of the Midwest and Southeast United States and in Puerto Rico and the U.S. Virgin Islands," AT&T said in a statement.

Shares of Centennial jumped to $7.85 in after-hours trading. AT&T shares were unchanged from their New York Stock Exchange close of $27.

AT&T, which has nearly 75 million wireless subscribers, said it expects minimal dilution to earnings and cashflow from integration costs in the first year after closing.

It aims to obtain approval for the deal from Centennial shareholders and regulators by the second quarter of 2009.

The companies said Welsh, Carson, Anderson & Stowe, Centennial's largest stockholder, has agreed to vote in support of this transaction.

NEED FOR CONSOLIDATION

Analysts have said that rural phone companies need to consolidate to cut costs, as more consumers cancel home phones to go completely wireless or switch to all-in-one phone, television and Internet packages offered by cable companies or national phone companies.

Verizon Communications Inc (VZ.N) is buying rural wireless service provider Alltel Corp for $28.1 billion, which will help it overtake AT&T as the largest U.S. wireless service provider. CenturyTel Inc (CTL.N) announced a deal last month to buy rival rural phone company Embarq Corp (EQ.N) for $5.8 billion in stock.

"The big continue to get bigger," Nelson said. "It's becoming increasingly difficult for the smaller carriers to compete against the large national carriers."