Brightpoint picks up CellStar assets: U.S., Latin American operations bought for $88M

Brightpoint Inc. will shell out $88 million in cash to purchase a major piece of crippled competitor CellStar Corp.
The Plainfield, Ind.-based logistics and distribution giant announced plans to buy CellStar’s 500-employee U.S. operations, including its Miami headquarters, and the bulk of its Latin American business. The move is expected to add $450 million in revenues and will be “slightly accretive” to Brightpoint’s earnings per share in the first year following the deal’s close, the company predicted.
“We think it’s a great opportunity,” Brightpoint President Mark Howell said of the acquisition. “(Latin America) is a very important market for wireless; it’s a market that embraces wireless technology. There are really big, sophisticated network operators there.”
The move underscores the increasing contrast between companies that were once strikingly similar. Both Brightpoint and CellStar gained early traction as cell-phone distributors and went public in the early 1990s, and both were buffeted as the telecom boom began to fizzle several years ago.
Brightpoint has rebounded, though, to become one of the largest mobile-phone distributors. It claims 3,400 employees worldwide and boasts operator partners including Sprint Nextel Corp., Alltel Corp. and U.S. Cellular Inc. (Many larger carriers ship phones themselves instead of contracting out to distributors.)
The company has expanded into logistics services, which include assembling and programming phones and handling returns for operators. And Brightpoint last year launched its Advanced Wireless Services subsidiary, which works with value-added resellers and system integrators to offer content and applications, converged devices and high-speed wireless solutions to business. It has agreed to serve as a distributor for Skype Ltd., delivering hardware from manufacturers to resellers, and performs a similar service for Vonage Holding Corp.
The idea, according to CEO Robert Laikin, is to grab a piece of mobile data revenues by leveraging its position as a distributor, logistics provider and liaison for carriers and mobile virtual network operators. Brightpoint has invested more than $1 million a quarter during the last few years to build its AWS business, according to Laikin, and is looking to acquire software developers that specialize in device management services in an effort to round out its offerings.
While the company isn’t likely to reap the reward from such efforts for years, Laikin has drawn parallels to the company’s early investments in the logistics business.
“Ten years ago, we were investing capital (in logistics services) and seeing little revenue, but we knew we were getting traction with the carriers,” Laikin said earlier this year. “With AWS, I think it is a strategic area we have to invest in … to differentiate ourselves and to assist carriers in their data initiatives.”
CellStar, meanwhile, has only recently begun to recover from the bursting of the telecom bubble. The company lost more than $200 million from 2001 through 2005, but reported $1 million in earnings on $238 million in sales in the quarter ending Aug. 31.
CellStar is selling its Mexican operations to two companies for roughly $20 million and is looking for a buyer for its Chilean business. It plans to use the cash to pay off debts and distribute the leftover proceeds to shareholders.
Shares of Brightpoint inched upward on the news, climbing to $13.25 per share, while CellStar stock plummeted 20 percent to $2.77 each.
Meanwhile, the acquisition places Brightpoint squarely against Brightstar, one of its biggest competitors, in the Latin American market.
“We’re very excited about the transaction,” Howell said. “Every single aspect of this transaction is easily reconciled to what our operation plan was.”