AT& T to buy rural phone co Centennial for $944m

AT& T Inc (T.N) plans to buy rural phone company Centennial Communications Corp (CYCL.O) for $944 million in cash to expand its wireless network in Puerto Rico and other regions of the United States, reuters reported.

The deal, which the two companies announced on Friday, comes amid a wave of mergers in the rural telecoms industry, which is struggling with slower wireless growth and declining home phone lines in a weak economy.

AT& T agreed to pay Centennial shareholders $8.50 per share, more than double the company's closing price of $3.84 on the Nasdaq on Friday. A year ago, Centennial was trading at around $10.

""I'm surprised to see a deal in this economic climate. But on the other hand, AT& T is using cash on hand and taking advantage of the significant decline in asset prices,"" said Michael Nelson, a wireless analyst at Stanford Group.

""This is one of the few rural wireless assets left. Perhaps it was inevitable,"" he added.

Centennial has 1.1 million wireless subscribers, of which about 40 percent are in Puerto Rico, where it has a market penetration of about 11 percent. It also has about 596,700 access lines for business customers in Puerto Rico.

""The transaction will enhance AT& T's wireless coverage for customers in largely rural areas of the Midwest and Southeast United States and in Puerto Rico and the U.S. Virgin Islands,"" AT& T said in a statement. Shares of Centennial jumped to $7.85 in after-hours trading. AT& T shares were unchanged from their New York Stock Exchange close of $27.

AT& T, which has nearly 75 million wireless subscribers, said it expects minimal dilution to earnings and cashflow from integration costs in the first year after closing.

It aims to obtain approval for the deal from Centennial shareholders and regulators by the second quarter of 2009. The companies said Welsh, Carson, Anderson & Stowe, Centennial's largest stockholder, has agreed to vote in support of this transaction.

Analysts have said that rural phone companies need to consolidate to cut costs, as more consumers cancel home phones to go completely wireless or switch to all-in-one phone, television and Internet packages offered by cable companies or national phone companies.

Verizon Communications Inc (VZ.N) is buying rural wireless service provider Alltel Corp for $28.1 billion, which will help it overtake AT& T as the largest U.S. wireless service provider.

CenturyTel Inc (CTL.N) announced a deal last month to buy rival rural phone company Embarq Corp (EQ.N) for $5.8 billion in stock.

""The big continue to get bigger,"" Nelson said. ""It's becoming increasingly difficult for the smaller carriers to compete against the large national carriers.""

Patrick Comack, analyst at Zachary Investment Research, agreed. ""You're going to have smaller companies capitulating in this market,"" he said, adding, ""The telecoms industry is way too competitive. The penetration has peaked.

In wireless, it's really a market share war. So you see Sprint (S.N) and T-Mobile suffering, and AT& T and Verizon winning here.""

Including debt, the deal puts an enterprise value on Centennial of $2.8 billion. It and AT& T already have a roaming partnership, where AT& T customers could roam on Centennial's network in areas where AT& T did not have coverage.

An AT& T spokesman said there was some overlap in their markets, primarily in the southeastern United States and Puerto Rico, but there was ""robust competition"" in these areas. In the Midwest, he said Centennial's network primarily covered rural areas and complemented AT& T's network.

""I don't think it's the last of AT& T's acquisitions. Nor Verizon's,"" said Comack. ""They're going to use their mass to do tuck-in acquisitions like this.""

Barclays Capital and Evercore were joint financial advisers to Centennial Communications in the transaction.

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