Pittencrieff Communications Inc. is the latest, largest and perhaps last significant addition to Nextel Communications Inc.’s corral of specialized mobile radio company acquisitions.
Nextel announced late last week its plans to buy Pittencrieff in a transaction valued at $159 million based on Nextel’s closing price Oct. 2 of $18.13. The Pittencrieff buy is “a good strong stone in the wall” said Nextel vice president Bob Ratliffe. The Abilene, Texas, company is second only to Nextel in number of subscribers. Together the companies boast about 1.1 million subscribers covering more than 250 million people.
McLean, Va.-based Nextel and Pittencrieff have signed definitive agreements to merge and now await regulatory approvals. Details of the deal were arranged in the last few months, said Pittencrieff Chairman and Chief Executive Officer Warren Harkins.
Pittencrieff is valuable to Nextel not only in its subscriber base, but its territory. “We didn’t have as many channels as we wanted to in the Southwest,” said Ratliffe. Harkins noted Texas is one of the fastest growing states in the nation.
In Nextel’s nationwide crusade to upgrade its networks to its second-generation digital service, called Powerfone, Pittencrieff’s footprint will be an immediate area of expansion, said Nextel spokesman Paul Blalock. The company plans to turn on Powerfone in all of its southwestern markets next year, and extend coverage to 85 percent of the U.S. population by 1998, Blalock added.
“The merger is something we put together to enhance shareholder value,” said Harkins. He said his company was faced with a number of “gates to cross going forward,” including raising financing to participate in the 800 MHz spectrum auction, which has been delayed by the Federal Communications Commission.
The merger “precludes us from further risk in attaining (capital),” said Harkins, noting the current financial market is shaky and that Nextel “has acquired at least capitalization for nationwide digital buildout.”
Nextel recently secured about $1.66 billion in bank financing through a syndicate of about 30 banks, said Ratliffe. (Story on p. 26).
Harkins said Pittencrieff estimated auction and buildout costs of future digital licenses at about $200 million, capital which the company had not yet secured. Combining assets with Nextel, “we create a synergy in certain markets where we are predominant.”
Through Nextel, Pittencrieff is “bringing digital to the market more quickly,” added Harkins. Further, Harkins said, “There’s plenty of wireless competition already. There’s no need for two SMR companies to compete as well.”
The Pittencrieff deal fortifies Nextel with spectrum in Texas, Arizona, New Mexico and Oklahoma, with more than 15 megahertz of spectrum in just Dallas, Houston, Phoenix, Tulsa and Oklahoma City.
The management structure for the combined companies has not yet been determined.
The close of the merger could be six months to a year from now, said Harkins. “It’s a bit premature to discuss what my position will be, if I have one at that time. My job is to see that we get closed.”
Ratliffe said Nextel’s pursuit is to run “an efficient business. At the same time this is an industry where you’re hard pressed to find good people.”
Nextel is led by President Tim Donahue, and Chairman and CEO Dan Akerson.
Under agreement terms, Nextel will issue a maximum of about 8.78 million shares in exchange for about 27.8 million fully diluted Pittencrieff shares, at the basic rate of 1 registered Nextel share for each 3.17 Pittencrieff shares, subject to certain adjustments. Total valuation to Pittencrieff shareholders is capped at $170 million, which would result in a decrease in the number of Nextel shares to be issued to Pittencrieff shareholders in the event Nextel’s share price exceeds $19.36 at closing.
Pittencrieff is about $9 million in debt, which Nextel plans to pay before closing the merger, said Blalock.
The day of the merger announcement, Oct.3, Nextel closed at $17.75, down 38 cents from a day earlier. Pittencrieff closed at $5 Oct. 3, down a quarter from $5.25 on Oct. 2.
Nextel has more than 200,000 digital and 809,000 analog units in service. Pittencrieff has about 92,000 analog customers. Nextel’s first-generation digital technology is in service in more than half of the nation, said Blalock. Powerfone is commercial in Boston and Chicago and expected to be available in Denver, Atlanta and Detroit by the end of the year.
Powerfone is touted to offer instant conferencing, advanced messaging and exceptional call quality. Nextel will market products and services under its own name in Pittencrieff’s markets.
In related news, Comcast Corp. sold about 2.3 million shares of its stock in Nextel Communications Inc., reducing its holdings to 3.3 million shares, or less than 2 percent of the company, said Nextel. A Nextel spokesman said Comcast has the option to buy additional shares at $16.
