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AT&T Sees Prospects in Hotel WiFi

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The second-largest U.S. mobile service provider AT&T Inc. (T - Free Report) is planning to acquire Montreal-based Superclick Networks for $15 million.

Superclick is an Internet provider for the hospitality industry. It designs, manages and deploys Internet services to top hotels and health care facilities such as Intercontinental Hotels Group plc (IHG - Free Report) , Marriott International, Inc. (MAR - Free Report) , Four Seasons, Jumeirah, Kimpton Hotels, Mandarin Oriental Hotels throughout North America, Canada, the Middle East and parts of Asia.

The deal received approval from the board of directors of Superclick and is awaiting shareholder approval. It is expected to be completed in the fourth quarter.

The acquisition will provide AT&T an opportunity to enter into the hotel WiFi (wireless broadband) business. The demand for hotel WiFi has been growing at a faster pace. Now a days, every hotel needs the Internet to attain the five-star status. AT&T is the leader in WiFi connectivity with over 24,000 WiFi hotspots in the U.S., and 135,000 globally.

Superclick has a high margin business, and generated 66.3% in the last quarter. Coupled with high margin, consistent growth and global presence, the deal sounds to be healthy for AT&T.

Although Superclick does not have a stellar revenue track record, it seems to be growing rapidly. In the last quarter, revenue improved 54% year over year to $1.7 million. Year-to-date, revenue improved 58% to $4.4 million from the year-ago level of $2.8 million.

Hence, if the deal gets approved, it would provide a massive boost to AT&T’s revenue and its future growth. Talks between AT&T and Superclick were on since last year, when the former initially extended a proposal and was rejected by the latter due to the low bid price.

In addition, the proposed acquisition is very small compared to AT&T’s ambitious $39 billion purchase of T-Mobile, a Deutsche Telekom’s unit. The takeover of T-Mobile is facing a major roadblock with the Department of Justice filing an antitrust lawsuit to block the deal a month ago.

While waiting for AT&T to enter into the WiFibusiness, we are maintaining our long-term Neutral recommendation on the stock with the Zacks #3 Rank (Hold).

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