AT&T Completes CYCL Acquisition

AT&T Inc (T) has reportedly completed its much anticipated acquisition of Centennial Communications Corp (CYCL), the eighth largest US wireless carrier by subscribers. This follows the recent approvals of the transaction by the US Department of Justice and US telecom regulator Federal Communications Commission (“FCC”). The transaction, which was originally set to complete in second-quarter 2009, is now officially closed. 

As per the agreement terms, shareholders of Centennial will receive $8.50 in cash for every share they own, equating to approximately $944 million. Including net debt, the aggregate value of the deal is $2.7 billion. AT&T will take appropriate steps to redeem all of Centennial’s outstanding debts. AT&T expects minimal dilution to earnings and cash flow in 2009 given the upfront integration costs. 

The acquisition has expanded AT&T’s wireless coverage to include the rural areas of the Midwest and Southeast regions of the US as well as Puerto Rico and the US Virgin Islands, adding 893,000 new subscribers. The acquisition will also offer operational synergies and improve the service quality of AT&T’s wireless network in specific markets. 

As per the demand of the US regulators, AT&T will divest certain Centennial assets in eight markets across Louisiana (central and southern) and southwestern Mississippi as the acquisition may potentially hurt consumer interest in these regions. As part of this requirement, AT&T will sell wireless assets in five of the eight markets to its rival operator Verizon (VZ) for $240 million. Moreover, AT&T has committed to continue Centennial's existing roaming agreements with other carriers for at least four years. 

Top-tier US carriers are increasingly focused on acquisitions in order to expand subscriber base and coverage zones as the US subscriber population reaches maturity. AT&T was dethroned by Verizon as the largest wireless carrier in North America in early 2009 with the latter’s acquisition of Alltel Corp. Centennial acquisition brings AT&T on the level playing field, allowing it to more effectively compete with its archrival Verizon. 

AT&T plans to launch its products and services in January 2010 in Centennial’s more than 100 retail locations across the US . Existing Centennial customers have the option to keep their current wireless service plans or they can switch to AT&T’s rate plans by paying applicable charges. AT&T will continue Centennial brand in Puerto Rico till mid-2010 and will launch its own products/services during third-quarter 2010. Moreover, AT&T plans to roll out 3G services in more than 200 sites in Centennial’s markets.
 
However, AT&T is expected to face integration problems as Centennial’s CDMA technology based wireless operations in Puerto Rico and the US Virgin Islands are not yet compatible with AT&T’s GSM wireless architecture. This may result in added costs for migrating cellular users to a uniform network platform.

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