AT&T; Wireless to Buy TeleCorp PCS in All-Stock Deal
AT&T; Wireless Services Inc. on Monday said it will buy its biggest affiliate, TeleCorp PCS Inc., in a $4.7-billion all-stock deal, giving the mobile communications giant nearly 1 million new customers and control over more spectrum.
The deal is expected to be the first of a wave of consolidations in the wireless phone world, as industry watchers expect the Federal Communications Commission to lift caps on how much spectrum a carrier can own in any one market.
AT&T; Wireless, the nation’s third-largest cellular provider, which already held a 23% chunk of TeleCorp, is expected to pick up the remainder of the company’s $2.4 billion in stock. It also will carry TeleCorp’s $2.1 billion in net debt and about $221 million in preferred securities.
Analysts say the agreement is a boon to TeleCorp investors, who will get 0.9 share of AT&T; Wireless stock for each share of TeleCorp. That price tag is about a 20% premium over recent closing prices for TeleCorp shares, which hit its all-time low of $9.96 last week.
“This was not a must have for AT&T;, but it certainly helps,” said Tim Burke, senior telecommunications analyst with Edward Jones. “AT&T; fills in a good portion of the mid-South, and the debt is not a big deal to them.”
Indeed, the acquisition allows AT&T; Wireless to reclaim valuable wireless spectrum and boosts its coverage area by nearly 20%.
AT&T; Wireless, based in Redmond, Wash., has 16.4 million customers, excluding partnerships and affiliates. TeleCorp has 915,000 customers under its SunCom brand name. More important, TeleCorp’s wireless licenses cover a population of 32 million, and include 16 of the top 100 U.S. markets.
Think of affiliates as a franchise. Today, none of the major wireless carriers--such as AT&T;, Verizon Wireless and Cingular Wireless--own a true nationwide network. Rather, the carriers focus on a core collection of urban areas, and rely on smaller firms like TeleCorp to cover the other regions.
When a consumer has to rely on the phone’s “roaming” feature, the call is typically piggybacking on an affiliate’s service.
TeleCorp’s spectrum was owned by AT&T;, which bought it at an auction. The spectrum was then given out to AT&T;’s various affiliates to build out the wireless networks in areas where the telephone giant didn’t want to invest.
TeleCorp’s network ranges across 14 states and includes Midwestern and Southern areas such as New Orleans; Des Moines; Memphis, Tenn.; and Louisville, Ky.
“Strategically, we believe this one is right over the center of the plate. We think we’ve got a home run here,” said AT&T; Wireless Chairman John Zeglis during a conference call with Wall Street investors. “Our plan is to make AT&T; Wireless the primary brand.”
The deal is the first Zeglis has overseen since AT&T; Wireless became independent of AT&T; Corp. in July. The companies, whose boards have already approved the transaction, expect the deal to close by June 2002, pending regulatory approvals.
AT&T; Wireless shares closed Monday at $15.60 on the New York Stock Exchange, down 52 cents. Arlington, Va.-based TeleCorp’s shares closed at $13.54, up $3.50 in Nasdaq trading.
