Sprint PCS’ largest affiliate Alamosa Holdings Inc. made good on previous comments that it was interested in acquiring a fellow affiliate by signing a deal last week to purchase AirGate PCS Inc. for $630 million. The deal, which is expected to close during the second quarter of next year, will further Alamosa’s position as Sprint PCS’ largest affiliate with more than 1.25 million subscribers in 19 states.
As part of the agreement, which is not expected to require Federal Communications Commission approval since neither operator owns wireless spectrum, AirGate shareholders will receive approximately $392 million in Alamosa stock with Alamosa picking up another $238 million in debt. Sprint PCS affiliates do not own the spectrum they use to market Sprint PCS-branded services and instead lease the spectrum for franchise fees.
Specifically, AirGate shareholders will receive 2.87 shares of Alamosa stock for every AirGate common share held, which based on Alamosa’s share price at the close of business Dec. 7 was valued at $33 per AirGate share. AirGate’s stock surged more than 20 percent late last month to nearly $34 per share on the initial reports of a possible acquisition by Alamosa before settling down last week to around $33 per share.
AirGate shareholders will also have the option to elect cash consideration in place of Alamosa stock, up to an aggregate amount of $100 million, with the per-share cash consideration based on the average closing price of Alamosa stock in the 10 trading days prior to the completion of the transaction multiplied by 2.87. Alamosa’s stock closed at $11.65 per share last Wednesday.
“We believe that the increased scale of our combined company will provide meaningful operational and financial benefits and will be a platform for future growth and value creation,” said David Sharbutt, chairman and chief executive officer of Alamosa. “In addition, with the significantly increased market capitalization, the combined company’s common stock should appeal to a broader investor group going forward and provide AirGate’s stockholders with a substantially more liquid market.”
Sharbutt cited Alamosa’s previous “value creation” through the acquisition of other affiliates in early 2001, including Roberts Wireless Communications, Washington Oregon Wireless and Southwest PCS, which effectively doubled Alamosa’s footprint. With the acquisition of AirGate, Alamosa will have the right to market Sprint PCS services covering 23 million potential customers in the Southeast, Midwest, Southwest and Northwest.
Sharbutt said that while he had not had any specific discussions with Sprint regarding the acquisition, he did not expect the carrier to have any problems with the deal.
“I expect Sprint to be supportive or at least not negative about the deal,” Sharbutt said. “We never had any indication that they would block consolidation.”
Sprint did not return calls regarding the deal prior to RCR Wireless News press time, but has in the past not interfered with consolidation between its affiliates.
Analysts did not see any major hurdles to the deal being approved, though some cited potential future stumbling blocks due to AirGate’s shallow spectrum holdings from Sprint, which controls only 10 megahertz of spectrum in AirGate’s markets. By comparison, Alamosa has access to nearly 30 megahertz of spectrum in most of its current markets.
Bear, Stearns & Co. Inc. noted in a recent report that the lack of spectrum along with the high levels of usage by AirGate customers-in excess of 1,000 minutes per month-will likely require AirGate to either acquire additional spectrum or spend more on cell splitting. The equity research firm noted that 3 percent of AirGate’s 811 cell sites are currently loaded with three carriers, which is the most each site can operate with using CDMA technology.
That spectrum deficiency could become an issue in the near future as AirGate has recently allowed rapidly growing mobile virtual network operator Virgin Mobile USA L.L.C. to begin offering service in its markets, and Sprint PCS is moving quickly ahead with plans to launch additional MVNO partners, as well as deploy CDMA2000 1x EV-DO technology on its network.
Alamosa’s Sharbutt acknowledged the potential spectrum shortfall in a handful of AirGate’s markets, but noted those issues were being taken into account as part of the acquisition. Sharbutt explained that AirGate was registered to participate in the FCC’s upcoming Auction 58, which will include several licenses for spectrum in AirGate markets in the Carolinas, and Alamosa was working with Sprint to solidify AirGate’s spectrum position.
Analysts also noted that AirGate could acquire additional spectrum from bankrupt license holder Urban Comm, which recently sold a number of licenses in North Carolina, South Carolina and Virginia to Triton PCS Holdings Inc. for $113 million. Bear, Stearns & Co. added that Urban Comm was in negotiations to sell its spectrum to another carrier, with AirGate the most likely candidate.
If AirGate manages to acquire spectrum through either the FCC auction or from a third party, Alamosa said it would then need to gain FCC approval for the change of ownership of those licenses.
While the acquisition of AirGate will further Alamosa’s position as the largest Sprint PCS affiliate, the company said it would be open to further consolidation.
“Once we finish integrating AirGate, we will look to see what will be next,” Sharbutt said.
