Centel Shareholders Ringing Mad Over Low Bid : Telecommunications: Stock price plunges 25% in the wake of Sprint’s surprise low offer.
The surprisingly low price Sprint Corp. has agreed to pay for Centel Corp. created an uproar Thursday that stretched from the trading floors on Wall Street to the boardrooms of the nation’s telecommunications companies.
As some Centel shareholders vowed to fight Sprint’s bid, valued at $33.50 a share, or $9 a share below the price when the deal was announced Wednesday, some analysts predicted that a new suitor for Centel would emerge. On Thursday, Centel stock plunged $10.50--or 25%--to $32.
Centel had put itself up for sale in January to avoid being a target for a possible hostile takeover. But only one company, Sprint, offered to buy the entire company.
Meanwhile, as the stocks of cellular companies sank and the shares of Baby Bell companies whip-sawed, Wall Street money managers and telephone industry executives started coping with the idea of a possible significant reduction in the market’s valuation of telecommunications stocks.
Despite the hoopla generated by the deal, the chairmen of the two companies went on the offensive early Thursday, noting that the price Centel accepted was made by the only company willing to bid for all of Centel’s local telephone and cellular operations. The offer made by Sprint, the nation’s third-largest long-distance phone company, was worth $33.50 a share Wednesday when Centel’s stock was trading at $42.50.
“This may be a watershed,” said Robert Stovall, a money manager and New York University finance professor. “It is the first time in my memory that any company has accepted a discount to the market price.”
Centel Chairman John Frazee, who put the company up for sale, conceded that he was surprised at the outcome. “I was surprised at the auction process, at the companies that did not bid,” he told a packed news conference in a Manhattan hotel. “I did push for a higher price. This is the price the Sprint board was willing to go.”
Sprint shares fell $1.375 to $23.125 on the New York Stock Exchange. Sprint and Centel were the two most active issues Thursday on the Big Board.
Sprint’s offer drove down the prices of a wide range of telecommunications stocks, hitting hardest at companies with large cellular operations. LIN Broadcasting fell $3 to $68, Vanguard Cellular fell $2.75 to $25.25, and McCaw Cellular dropped $1.50 to $27.50
Craig Ellis, a telecommunications analyst at First Wheat Securities in Richmond, Va., said Sprint’s offer values Centel’s cellular operations, serving a potential 20 million subscribers, at less than $140 per potential customer. That’s far less than the more than $200 per potential customer in recent deals.
That price level, he said, is undermining the asset value of other cellular companies, as was reflected on Wall Street Thursday.
However, William Davidson, a USC business professor and telecommunications consultant, said that some cellular companies recently had become overvalued and were due for a tumble.
“The industry doesn’t want to hear this, but there had gotten to be a kind of ‘Emperor’s new clothes’ phenomenon to valuing cellular properties,” Davidson said. “No one wanted to say or admit that they weren’t worth what some buyers had been paying.”
At the same time, Cowen & Co.’s Geoffrey Johnson noted that Sprint’s offer sets the value of Centel’s local telephone business at four times cash flow, about half of the benchmark in recent deals.
“There are clearly negative fundamental changes going on in the local telephone companies,” said Jack Grubman, a PaineWebber analyst. “We analysts have been saying that. Now the guys that run the industry are showing proof; there were no other bids.”
Analysts said some of the regional Bell operating companies probably did not bid for Centel, as expected, because they are preoccupied with international expansion and pursuing newly permitted opportunities in information services and equipment manufacturing.
“The other potential bidders didn’t want the whole company because they already have too much on their plates right now,” said Sharon Armbrust, an analyst with Paul Kagen Associates in Carmel. “The price was diminished by the fact that there were so few bidders.”
Centel spokesman Bill White said the company received other offers, but only for portions of the company, leaving significant chunks of its operations with no buyers. He said Sprint was the only company willing to buy all of Centel.
When Centel put itself up for sale, company officials said they wanted to maximize shareholder value. The Chicago-based company, with 1991 revenue of $1.2 billion, provides local telephone service in six states and cellular communications in dozens of metropolitan areas.
Frazee said the final bid--1.37 shares of Sprint for each Centel share--was a better price than Centel would have been able to get had it sold off its business in pieces and then paid taxes on the proceeds.
The proposed stock swap, which must still be approved by regulators and the stockholders of both companies, would be free of any tax obligations, Sprint officials said.
Phone Stocks Tumble
How stocks of some telephone and cellular-phone firms reacted to the lower-than-expected price of the Centel-Sprint merger.
Thurs. close Stock and change Centel $32, -10 1/2 Tel. & Data Sys. 30 7/8, -3 7/8 LIN Broadcast. 68, -3 1/2 Vanguard Cell. 25 1/4, -2 3/4 McCaw Cellular 27 1/2, -1 1/2 Sprint 23 1/8, -1 3/8 Cellular Inc. 12 1/4, -1 GTE Corp. 31 1/4, - 3/4 Pacific Telesis 41 1/2, - 3/4
