Rural cellular carrier PriCellular Corp. last week agreed to be acquired by American Cellular Corp. for approximately $1.4 billion, including about $811 million cash and $600 million in debt repayment.
PriCellular shareholders are scheduled to receive $14 for each common share.
Robert Price, the company’s founder and chairman of the board, apparently abstained from voting on the deal because he felt the company could have gotten a better price if it had been allowed more time to mature.
A BT Alex. Brown Inc. report estimated the company could have sold for anywhere between $14 and $17 per share. Although at the low end of the range, a $14 per-share price still is 13.4 times higher than the firm’s 1998 cash flow estimates for PriCellular of $97.5 million and 9.9 times higher than 1999 cash-flow estimates of $131.4 million, said the report.
The buyers include industry veterans Brian McTernan and John Fujii, principals of MLC Industries. McTernan in 1985 built and operated a cellular property for Metromedia Telecommunications in Chicago and Indiana. At the time, Fujii was the chief financial officer of Metromedia. McTernan and Fujii, who since have been involved with 18 cellular properties around the United States, will serve as co-presidents of the company.
A group of institutional investors also has invested in PriCellular, including $350 million in equity pledged by Spectrum Equity Investors, Providence Equity Partners and Sandler Capital Management.
Merrill Lynch, which advised American Cellular during the transaction, and Toronto-Dominion jointly provided a financing commitment to American Cellular of $1.2 billion of senior and subordinated debt required to close the transaction.
Following the transaction, the company will continue to be managed and operated in a similar fashion to how it now is operated, said Steven Price, president and chief executive officer of PriCellular, and son of the Robert Price. Both PriCellular and American Cellular operate under a highly decentralized structure.
No layoffs are planned, he said, and service will continue to be offered under the Cellular One brand name. The corporate name, however, will change to American Cellular.
“Clearly this is a consolidating industry,” said Steven Price, who said he will stay on with PriCellular long enough to ensure a smooth close to the transaction but wouldn’t reveal plans beyond that. “We’ve seen a number of transactions in the last few months, and we’ll probably see a number more in the next few months.”
The transaction is expected to close this summer and is subject to various approvals.
PriCellular has been a darling of Wall Street, outperforming the S&P500 by 63 percent during the last three-and-a-half years, according to BT Alex. Brown’s report. The only stock to outperform PriCellular’s on the firm’s index is Price Communications Corp., the company run by Robert Price. Price Communications recently acquired Palmer Wireless Inc.
PriCellular “is an attractive property,” said Jeffrey Hines, an analyst with BT Alex. Brown. “It is well insulated in terms of cash flows because its markets are not on the radar maps of PCS and Nextel [Communications Inc.] competition.”
PriCellular operates four clusters in primarily rural areas. The company’s markets include a cluster around Minnesota, Wisconsin and Michigan; a cluster in Ohio, West Virginia and Pennsylvania; a cluster in New York; and a cluster in Kentucky and Tennessee. The company has a subscriber base totalling about 250,000.
“When my Dad started buying assets in 1994, people kept saying it was too late to get into this industry,” said Steven Price. “They said `you’ll never be able to get even half a million pops or even one cluster.’ We disagreed.”
Within three years, PriCellular has acquired properties to cover more than 5.1 million pops and boasts a penetration rate of nearly 5 percent.
So why sell when the company is experiencing so much success?
“Ultimately, we have to respond to shareholders, and if a proposal comes along with this kind of value, then you have to take a close look at it,” said Price. “This is a very attractive deal for our shareholders.”
