RE: An Acquisition Of Alaska Communications By Verizon Would Make A Lot Of Sense
As of October 21, 2011, the stock of Alaska Communications ( ALSK) is down -43.3% YTD. It is amazing that it has not fallen further given the significant amount of negative sentiment investors have towards it. Four of the five Wall Street analysts that cover the stock rate it as a hold (which is usually a thinly disguised sell recommendation). The internet is littered with postings that question whether the dividend will continue to be paid at the current level, and the message boards on Yahoo Finance even have some people trying to start a “countdown to delisting.” Not surprisingly, the company has one of the highest short interests of stocks traded on the NASDAQ. As of September 30, 2011, more than 12 million shares were sold short; that is 28.1% of the outstanding float. Other than those excited about a +13% dividend yield, it would seem that virtually no one likes this company and perhaps rightfully so.
The analysis of most people tends to dig into the balance sheet and cash flow statements and uncovers a somewhat large amount of debt and an unsustainable source of funding for the high dividend. Alaska Communications is a small company based in a far off land and not that many people talk about it, so information can be hard to come by. Based strictly upon the quarterly statements and the guidance by management, the outlook for this company is by all accounts troubling. However, spending too much time focused on the fundamental numbers inside those quarterly filings has caused most to not even notice the 800 lb. gorilla that is sitting right next to Alaska Communications (more on this later, but it is quite literally right next to them).
The gorilla is Verizon ( VZ). Verizon does not currently offer any service in Alaska whatsoever. When Verizon Wireless subscribers travel to the 49th state, their phones operate under a roaming agreement between Verizon Wireless and Alaska Communications. The exact financial terms of this agreement are unknown and governed by a non-disclosure agreement, but it is fair to assume that the vast majority of the $32 million in roaming revenue that Alaska Communications collected in the last 12 months was a result of its agreement with Verizon Wireless. Alaska Communications has been providing roaming services to Verizon for roughly the past decade. So far this agreement has worked out well for both parties. Verizon does not need its own network in the state but can still claim nationwide coverage. On the other side, Alaska Communications is taking in a handsome amount of roaming revenue. Despite this seemingly synergetic relationship, over the past year Verizon has stated its intentions to develop its own network in Alaska. The detailed account of the events over the past year makes for a very long story. In the interest of brevity and clarity the following is a brief summary of the pertinent events of the two companies over the past 14 months.
seekingalpha.com
To read the whole article, click on the shortcut
Kirby |
