VZW to pay $2.67B for Rural Cellular

Verizon Wireless announced a $2.67 billion deal to acquire Rural Cellular Corp., one of the nation’s largest rural carriers. The agreement will add RCC’s 700,000 customers to Verizon Wireless’ base-which currently stands at 62.1 million-and will expand the No. 2 operator’s coverage in parts of the East Coast and the South, as well as in Minnesota, North Dakota, South Dakota, Wisconsin, Kansas, Idaho, Washington and Oregon.
The transaction also continues a powerful consolidation trend among the nation’s wireless carriers. Over the past several years the number of regional wireless carriers has continued to shrink as nationwide players have dipped into rural markets to expand coverage and customers bases. Indeed, AT&T Inc. just last month announced a plan to buy Dobson Communications Corp. for $2.8 billion.
According to RCR Wireless News’ By the Numbers ranking, RCC is the nation’s 14th largest service provider in terms of subscribers, while Dobson is No. 11.
Under the terms of the deal, Verizon Wireless will pay $45 per share for the rural carrier, a figure Verizon Wireless said represents a 16% premium to the rural carrier’s average share closing price over the past 10 trading days.
RCC uses both CDMA and GSM technology separately across its markets. Verizon Wireless said it will deploy CDMA service in Rural Cellular’s existing GSM markets and convert the GSM customers to CDMA service. Interestingly, though, Verizon Wireless said it will maintain RCC’s existing GSM networks to continue serving the roaming needs of other GSM carriers’ customers.
The acquisition, which is subject to governmental, regulatory and shareholder approval, is expected to close in the first half of next year.
“Verizon Wireless continually looks for opportunities to enhance our customers’ wireless experience,” said Lowell McAdam, president and CEO of Verizon Wireless. McAdam recently took over Verizon Wireless from CEO Denny Strigl, who moved into a leadership position at Verizon Wireless’ parent company Verizon Communications Inc. Verizon Wireless’ acquisition of Rural Cellular is McAdam’s first major financial transaction.
“The addition of Rural Cellular’s markets will enable us to expand our services into areas where previously we had little or no presence, and will give Rural Cellular’s Unicel customers access to the nation’s most reliable network and a broader range of voice and data services,” McAdam said.
Rural Cellular’s stock was trading at around $43 per share on the news.
The acquisition announcement followed on the heels of Verizon Communications’ second-quarter financial results. The carrier reported a companywide 4.5% increase in net income thanks to its wireless and broadband growth.
Although Verizon Wireless previously announced its customer numbers for the second quarter, showing 1.3 million net customer additions, Verizon Communications outlined the financials of its wireless business in the second quarter. Verizon Wireless showed revenues up 17.1% from the same quarter a year ago, to $10.8 billion. The carrier’s operating income margin rose to 27.8% in the second quarter, and its retail service average monthly revenue per customer hit $51.84, a 3% increase over the same quarter a year ago.
Verizon Communications’ stock was down slightly after its second-quarter earnings announcement to around $41.25 per share.