Smartalk Teleservices Inc. rocketed into the prepaid calling card big leagues last week, virtually doubling in size with the acquisitions of GTI Telecom Inc. and SmarTel Communications Inc.
“The purchase of these two companies demonstrates that Smartalk is executing on its plan to be a consolidator of this industry,” said Smartalk Chairman and Chief Executive Officer Robert H. Lorsch. “These acquisitions are synergistic and increase our share in the marketplace and create a prepaid calling powerhouse.”
In their search for additional sources of revenue, a number of telecom players have targeted prepaid cards and calling plans, which have continued to increase in popularity-especially among students and those with credit problems.
In acquiring prepaid card manufacturer and distributor GTI Telecom for approximately $70 million, Los Angeles-based Smartalk adds more than 4,000 storefronts to its 13,000-plus retail distribution channel, substantially boosting its market share in the retail drug and grocery segments.
“We are comfortable that we can integrate these three companies smoothly with a minimum of complications,” Lorsch said. “Additionally, due to the size of the combined operation, we see many opportunities to leverage costs through relationships with carriers, plastic manufacturers and other vendors.”
Privately held GTI Telecom has agreements to distribute phone cards through leading national retailers, including Dominick’s Finer Foods, Eckerd Drug, Food4Less, Ralph’s Supermarkets and Spencer Gifts. Additionally, GTI holds a variety of licenses to be used with prepaid calling card promotions, including entertainment properties like the “Star Wars” movies.
“GTI’s success in the retail drug and supermarket segments fits well with our existing retail distribution network,” said Smartalk’s Lorsch.
In business since 1983, GTI posted about $21 million in revenues in 1996. Smartalk’s purchase of GTI involves issuing roughly 2.5 million shares of common stock and $26 million of the company’s subordinated notes due 2001, as well as assuming approximately $10 million of GTI’s debt.
Under terms of the acquisition agreement, GTI will continue to operate out of its Winter Park, Fla., headquarters. GTI founder William R. Harger, who will assist in the transition and serve as a continuing consultant to the company, said, “I think the two best prepaid companies in the business have just become the best prepaid company in the business. This is a perfect step for GTI as it brings us in under a bigger umbrella, which will bring both operating and cost efficiencies into play.”
In a transaction valued at approximately $10 million, Smartalk also recently acquired Boston-based SmarTel Communications Inc., a leading premium and incentive-based calling card company that creates interactive communications and value-added promotional prepaid calling programs for large corporate clients, such as Gillette, Hewlett-Packard Co., Wells Fargo Bank, Nabisco, Pfizer and Prudential Securities.
“These prepaid calling cards are a tremendous promotional vehicle … and will contribute to Smartalk’s ability to compete more aggressively in the marketplace,” said William Kahn, Smartalk’s director of investor relations.
