In a deal loud with industry-shaking repercussions, the United States’ top two paging carriers announced their intention to merge in November, raising the consolidation bar to a level as yet unseen in the industry’s history.
Arch Communications Group Inc., the second-largest paging carrier, emerged as the victor in this latest consolidation round with an offer to buy rival top-ranked carrier Paging Network Inc. for about US$1.4 billion in stock and assumed debt.
A combined Arch-PageNet would result in the largest carrier in the nation by far, with 16 million customers and an estimated annual operating cash flow of about US$535 million and annual net revenues of more than US$1.7 billion. It also would operate
PageNet’s nationwide two-way ReFLEX 25 paging network.
The new company will keep the Arch name, Nasdaq ticker symbol and headquarters in Westborough, Massachusetts. Much of PageNet’s Dallas operations center will be retained. John Frazee Jr., PageNet chairman and chief executive officer (CEO), will be chairman of the new company, while Arch Chairman and CEO Edward Baker Jr. will serve as CEO.
In particular, the merger would form a highly deleveraged paging carrier free of the debt strain that has hindered the two carriers’ separate efforts to compete in the new wireless arena and could lead the way for other mergers to follow.
“We recognize that the future of our industry lies in wireless information and wireless instant messaging,” said Arch’s Baker. “This is going to require strong sales and marketing efforts and robust wireless messaging networks. You need to invest in sales and marketing and the technology of your network. To do so, you have to be financially flexible. By trading equity for debt, we can do this.”
“Both (Arch and PageNet), as wireless messaging companies, have significant debt, which makes it difficult to accomplish the objectives of making traditional paging profitable as well as make the emerging advanced messaging business viable,” said Scott Baradell, PageNet vice president of corporate communications.
Further consolidation?
The PageNet-Arch merger places more pressure on the remaining paging carriers in the United States to consolidate. All eyes now are on WebLink Wireless Inc. (formerly known as PageMart Wireless), Metrocall Inc. and AirTouch Paging.
Metrocall is a known consolidator not shy of chasing bigger deals with an eye for the No. 1 position on the chart. It has a resale agreement with WebLink, under which the two will share a two-way network buildout process, which some see as a getting-to-know-you deal that may result in a merger.
AirTouch, which boasts a profitable paging business, also is part of that resale alliance. AirTouch and WebLink both are based in Dallas, and their management teams are said to be very close.
Speculation exists that AirTouch either may buy WebLink and incorporate it into the overall company, like what MCI WorldCom did with SkyTel Communications or spin off its paging operation and merge it with WebLink.
Arch is another company involved in the WebLink resale alliance, a relationship Baker said will be impacted by the WebLink purchase since Arch will operate PageNet’s existing two-way network.
