AT&T Delays Acquisition Of Centennial Communications

AT&T (T) has further delayed its acquisition of regional telecom operator Centennial Communications (CYCL) which is now expected to conclude in fourth-quarter 2009. The acquisition was originally set to close by second-quarter 2009 but was delayed to third-quarter 2009 in July 2009. The deal is pending regulatory clearances of the Department of Justice and Federal Communications Commission and other closing conditions.

AT&T announced its acquisition of Centennial in November 2008 for $2.8 billion in cash and assumed debt. Under the deal term, Centennial’s shareholders are expected to receive $8.50 in cash for every share they own, equating to approximately $944 million. The acquisition was unanimously approved by Centennial’s shareholders in February 2009.

Consolidation among the top-tier US carriers has become a widely used strategy in recent times to stay competitive in a market charaterized by intense price war. With its acquisition of Alltel Corp in early 2009, Verizon (VZ) surpassed AT&T as the largest wireless carrier in North America serving approximately 87.7 million customers.

Moreover, Deutsche Telekom (DT) is also considering the merger of its US subsidiary with Sprint Nextel (S), representing a significant threat to AT&T. As such, AT&T is increasingly focused on acquisitions in order to expand its subscriber base and coverage zones as the US subscriber population reaches maturity.

Successful consummation of Centennial deal will broaden AT&T’s wireless coverage markets to include the rural areas of the Midwest and Southeast regions of the US as well as Puerto Rico and the US Virgin Islands, providing the company 1.1 million new subscribers. Additionally, the acquisition will offer operational synergies as well as improve the service quality of AT&T’s wireless network in specific markets.

Acquisition of Centennial, although vital for AT&T, may negatively impact its balance sheet as resources spent on the purchase will limit debt repayments. Furthermore, the company also faces integration problems as Centennial’s operation in Puerto Rico are not yet compatible with AT&T’s GSM wireless architecture which may result in added costs to migrate cellular users to a common network technology platform.

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