NEW YORK-After a flurry of announced mergers and acquisitions earlier this year, amid booming stock and high-yield bond markets, the deal flow has slowed in tandem with deteriorating conditions in the public capital markets.
Even if the appetite of investors remained strong into this quarter, the other key question about the prospects for domestic cellular and personal communications services company mergers is, who’s left?
Not many, in the view of Christopher Morris, senior vice president of Donaldson, Lufkin & Jenrette Securities Corp.
“In wireless, I think consolidation is, for the most part done. The top five players control 80 percent of the subscribers and the top 10, 95 percent,” he said.
Many of the smaller cellular firms can afford to sit tight because “they’ve been around since day one, have access to capital and feel comfortable operating next to the big guys, getting roaming revenues,” said Robert Lazzeri, senior vice president of Daniels & Associates.
However, such smaller operators “could look for an exit” by being acquired if they decide they need to upgrade their old analog networks and find that banks aren’t willing to finance these capital improvements, he said.
Price Communications Corp. is one smaller cellular player that could be in play, according to Glenn T. Powers of Cruttenden Roth Inc. in an Oct. 9 research report sent to RCR by Price Communications.
“Price is looking like the next possible acquisition target for one of the big wireless carriers. Using multiples AT&T (Corp.) paid for Vanguard (Cellular Systems Inc.), Price Communications’ value per share is $14,” Powers said.
The difficult high-yield bond market conditions may have caused Price to “back off from its aggressive acquisition strategy,” he said.
Cruttenden Roth also reported that Price Communications tentatively had offered $27 per share for Vanguard Cellular, which instead accepted a firm bid of $23 per share in cash from AT&T after Price declined to make a formal acquisition proposal. Senior executives of Price Communications had denied an earlier report of its offer for Vanguard that Toronto Dominion Securities USA Inc. disseminated.
“There could be some consolidation on the large telco side, and that will drive some continued opportunities,” DLJ’s Morris said.
There is one large telecommunications company that warrants particular attention, and that is MCI/WorldCom, said Everett Dobson, president, chairman and chief executive officer of Dobson Communications Corp.
“If MCI/WorldCom decides it needs a real wireless product to complement its wireline business, the whole paradigm of the wireless industry will change,” he said.
At least on the Canadian side of the border, difficulties inherent in alliances promote “a tendency to feel the need to provide coast-to-coast fiber,” said Robert A. Ferchat, chairman and chief executive officer of BCE Mobile Communications Inc.
“Certainly, at the T1 level, this will lead to a national service provider,” he said.
Another area of wireless telecommunications to watch closely for consolidation activity is PCS, said Michael Kalogris, chairman and chief executive officer of Triton PCS Inc. and a board member of the Cellular Telecommunications Industry Association.
“The North America GSM consortium will get rationalized. Lack of liquidity means the PCS operators will have to do deals,” he said.
“They need money for buildout and will be shut out of the market for quite some time. With financing sources shut down, their management might be eager to sell to larger companies.”
