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Verizon Wireless to buy Rural Cellular
NEW YORK (Reuters) - Verizon Wireless, the No. 2 U.S. wireless service, said on Monday it would buy Rural Cellular Corp RCCC.O for $757 million in cash to save on roaming costs and expand its customer base.
Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L), said Rural Cellular shareholders would receive $45 per share in cash, a 16 percent premium to the average closing price for the last 10 trading days and 41 percent above Friday's close of $31.88.
The Verizon Wireless deal is worth $2.67 billion, including the assumption of net debt, according to Verizon Wireless. It expects more than $1 billion in savings from reduced roaming fees and operating expenses as a result of the deal.
The shares of Rural Cellular, the latest target in a spate of acquisitions of U.S. rural wireless services, rose $10.74 or almost 34 percent to $42.58 after the news.
The stock reached a roughly 6-year high of $45.82 in early July on investor speculation it could be the next rural company to be bought by a private equity buyer or a rival looking for ways to maintain growth even as most people in the United States already own cell phones.
Rural Cellular shares dropped as low as $30.40 on Friday on valuation concerns, according to one analyst who said the deal valued Rural cellular above its peers.
"In comparison to other deals, I think (Rural Cellular is) richly valued," said Stanford Group analyst Michael Nelson.
Nelson said the Rural Cellular price tag at 9.5 times his 2008 estimate for earnings before interest, tax, depreciation and amortization (EBITDA) compared with a multiple of 8.2 for leading rural wireless provider Alltel Corp AT.N, which recently agreed to be bought by private investors.
AT&T Inc (T.N), Verizon's biggest rival, recently agreed to buy Dobson Communications Corp DCEL.O for 9.1 times Nelson's 2008 EBITDA estimate, he said.
"I think investors worried the likelihood of a deal diminished once AT&T bought Dobson," Nelson said.
JPMorgan analyst Tom Lee said the Rural Cellular deal was good news for other rural companies such as SunCom Wireless Holdings Inc (TPC.N). SunCom stock rose 53 cents, or more than 2 percent, to $23.60 in afternoon trading on the New York Stock Exchange, but was well below $30, where Lee said its valuation would compare with the Rural Cellular price tag.
Verizon Wireless said the acquisition, which it expects to close in the first half of 2008, would increase its customer base by more than 700,000 subscribers.
Only about 40 percent of Rural Cellular's network runs on CDMA, the most widely used wireless technology standard in the United States, and the remainder runs on GSM, a technology popular in Europe and used by AT&T's wireless service.
As a result Verizon Wireless, which runs its services on CDMA, said it would add CDMA capability to the Rural Cellular network. It did not say how much it expects this to cost.
Rural Cellular was advised on the deal by Bear Stearns, Skadden Arps Slate Meagher & Flom LLP and Falkenberg Capital. Verizon Wireless was advised by JPMorgan Chase & Co and Debevoise & Plimpton LLP.
The shares of Verizon Communications, which also reported quarterly earnings on Monday, were down 54 cents, or more than 1 percent, at $41.46 in early afternoon trading.
