Verizon Wireless to buy Rural Cellular

By Sinead Carew

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: Quote, Profile, Research, Stock Buzz) and Vodafone Group Plc (VOD.L: Quote, Profile, Research, Stock Buzz), 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.