VoiceStream to buy Omnipoint for $4.6 billion
By Bloomberg News
Special to CNET News.com
June 24, 1999, 5:55 a.m. PT
VoiceStream Wireless, which provides cellular phone service in the Western U.S., agreed to buy Omnipoint for $4.6 billion in stock, cash, and assumed debt to move into key East Coast markets.
Omnipoint holders will receive 0.825 VoiceStream shares and $8 in cash for each Omnipoint share. The offer values Omnipoint at $32.3375 a share, 55 percent more than Omnipoint's closing price yesterday. VoiceStream will also assume $2.6 billion in debt.
As part of the transaction, Hutchison Whampoa of Hong Kong, VoiceStream's biggest shareholder, will invest $957 million in the combined company. Hutchison, which owns interests in wireless phone systems in 12 nations on five continents, will boost its VoiceStream stake to 30 percent from 24 percent.
"What we're able to do is deliver a larger footprint--a national footprint," VoiceStream chairman John Stanton said. He said the company also will be better positioned to offer service to major customers like large corporations.
VoiceStream and Omnipoint use the global system for mobile communications, or "GSM"--a digital standard. Their customer growth was hamstrung because they only offered service in limited regions. The combination will let VoiceStream sell wireless service in big Eastern cities like New York, Boston, and Philadelphia. That could help it compete with wireless leaders AT&T, Sprint, and Nextel Communications.
The combined operations will be the ninth-largest U.S. wireless company with more than 1 million customers, Stanton said. VoiceStream will save costs by combining functions like billing and customer service and can reduce what it pays other carriers to serve its customers when they travel around the United States.
"It creates some massive scale for the company," said Deutsche Banc Alex Brown analyst Jeffrey Hines, who rates VoiceStream shares "strong buy."
The company will continue to have significant losses, though it will reach positive cash flow--earnings before interest, taxes, depreciation, and amortization--earlier than it would have as two separate operations, Stanton said.
Hutchison's initial $320 million investment in VoiceStream, made in 1997, is now valued at about $800 million, said Canning Fok, Hutchison's managing director. "We have now expanded that company from a regional to a national player," he said.
Hutchison
Analysts and investors have long speculated that Omnipoint, which offers wireless services in the Midwest and East Coast, would be bought. Bellevue, Washington-based VoiceStream operates primarily in Western markets such as Denver, Phoenix, and Seattle.
Bethesda, Maryland-based Omnipoint has been seeking strategic investors for about a year and this spring said it was negotiating with several companies.
There are likely to be more acquisitions, among cellular carriers who use the GSM standard, analysts said.
"It's signaling the roll-up of the GSM carriers," said CIBC World Markets analyst Harvey Liu, who rates VoiceStream shares "buy."
Powertel or Aerial Communications could be acquired next as VoiceStream and other GSM carriers try to build a national network.
VoiceStream also said it will start a joint venture with Cook Inlet Region to buy some licenses held by Omnipoint. Cook Inlet, an Anchorage, Alaska-based company owned by 6,900 Alaskan Indian, Eskimo, and Aleut descendants, will own 50.1 percent of the venture.
The combined company, together with the Cook Inlet joint venture, will have licenses to provide GSM wireless service to regions with 175 million potential customers, VoiceStream said. They will hold licenses for 17 of the top 25 markets.
Omnipoint chairman Doug Smith will become vice chairman of VoiceStream.
Shares of VoiceStream rose 0.125 to 29.5. Omnipoint rose 0.0625 to 20.8125. The acquisition was announced yesterday after the close of U.S. trading.
VoiceStream was advised by Goldman, Sachs. Omnipoint was advised by Allen and Lehman. Chase Securities advised Hutchison. The purchase is expected to close in the fourth quarter.
Copyright 1999, Bloomberg L.P. All Rights Reserved.
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