CEO was on CNBC pushing GSM ....
Top Financial News
Mon, 20 Sep 1999, 5:49pm EDT
VoiceStream Wireless to Buy Aerial Communications for About US$3.3 Billion
By Ron Day
VoiceStream to Buy Aerial for About US$3.3 Billion (Update5)
(Adds closing share price. Updates value of the purchase.)
Bellevue, Washington, Sept. 20 (Bloomberg) -- VoiceStream
Wireless Corp., a cellular-telephone company serving the western
U.S., agreed to buy Aerial Communications Inc. for about $3.3
billion in stock, adding customers throughout the Midwest.
VoiceStream will exchange 0.455 share for each Aerial share,
or about $28.18 each. The offer was about 28 percent more than
Friday's closing price. Shareholders of Chicago-based Aerial can
choose to receive $18 a share in cash instead of stock.
VoiceStream Chief Executive John Stanton, a co-founder of
McCaw Cellular, wants to compete with larger nationwide rivals
AT&T Corp. and Sprint Corp. In June, the Bellevue, Washington-
based company agreed to buy East Coast wireless provider
Omnipoint Corp. for about $5.5 billion. VoiceStream, which uses
different wireless technology than AT&T and Sprint, will have
licenses in 22 of the 25 largest U.S. markets after the purchase.
``VoiceStream, Aerial, and Omnipoint together have a very
nice footprint,' said Frank Marsala, an analyst with Gerard
Klauer Mattison & Co. ``VoiceStream gets good cities and large
spectrum blocks.'
VoiceStream will have about 1.5 million customers after
completing the two acquisitions, including about 347,000 users
from Aerial. AT&T has about 11 million customers, while Sprint's
PCS wireless group has about 4 million subscribers.
Aerial's markets include Columbus, Ohio; Houston;
Minneapolis; Kansas City; Pittsburgh, and central Florida.
Shares of Aerial jumped 6 5/8, or 33 percent, to 26 5/8 and
VoiceStream rose 5 7/8, or 10 percent, to 61 15/16.
Share Protection
Analysts said the shares jumped, in part, because the cash
alternative acts as a floor for investors against a drop in the
value of VoiceStream shares before the transaction closes.
``If you are an Aerial shareholder, it protects you on the
downside,' said Marsala, who rates VoiceStream a ``buy.'
VoiceStream's offer values Aerial at about $96 a customer,
more than the $79 a customer VoiceStream agreed to pay for
Omnipoint, Marsala said. Still, that is less than Nextel
Communications Inc., whose stock values its customers at roughly
$144 each, or Sprint PCS, whose stock values its customers at
about $206, he said.
The coverage area for VoiceStream will now encompass about
200 million people, making it closer in size to the area that
AT&T serves, said John Bensche, an analyst with Lehman Brothers
Inc., who rates VoiceStream ``buy' and Aerial ``outperform.'
Worldwide Use
VoiceStream and Aerial use the global system for mobile
communications, or GSM, which is more widely used in Europe.
While their customer growth has been hamstrung because they only
offered service in limited regions, analysts said the technology
allows VoiceStream customers to use their telephone overseas, an
option not offered by AT&T and Sprint.
``This will facilitate a lot of international roaming,'
Gerard Klauer's Marsala said, who rates VoiceStream ``buy.'
GSM is the world's most popular digital-wireless standard.
It competes in the U.S. with time-division multiple access, or
TDMA, used by AT&T and code-division multiple access, or CDMA,
used by Sprint PCS.
AT&T and British Telecommunications Plc formed an alliance
last week to provide business clients with service overseas. The
partnership is expected to begin operating in the next year.
Telephone & Data Systems Inc., which owned about 82 percent
of Aerial, will hold about a 14 percent stake in VoiceStream.
Hutchison Whampoa Ltd. of Hong Kong, which owns interests in
wireless phone systems on five continents, is VoiceStream's
largest shareholder with about 30 percent.
Telephone & Data
As part of today's agreement, Chicago-based Telephone & Data
said it exchanged $420 million of debt it was owed by Aerial into
common stock of Aerial at $22 a share. Shares of Telephone & Data
rose 4 1/4 to 79 3/4.
In December, Telephone & Data withdrew an offer to buy the
rest of Aerial and said it would spin off its stake. The company,
which provides phone services in rural markets, had sought to
boost its share price by separating out the cellular properties.
Sonera Ltd., a Finnish telecommunications company and Aerial
shareholder, said it invested an additional $230 million into
Aerial. It also exchanged its stake in an Aerial unit for common
stock just prior to the VoiceStream agreement.
In a separate agreement, Sonera will invest $500 million in
VoiceStream, buying shares at $57 each. Sonera will have an 8
percent stake in VoiceStream.
``Aerial's markets are both attractive and highly
complementary to VoiceStream's ever-expanding footprint across
the United States,' Stanton said in a statement.
Wireless Pioneer
VoiceStream was spun off in May from Western Wireless Corp.
Stanton had created Western Wireless in 1994 by merging two of
his companies, Pacific Northwest Cellular and General Cellular
Corp. He was also vice chairman as well as a co-founder of McCaw
Cellular.
VoiceStream sells digital wireless service in urban areas
like Seattle, Denver and Phoenix. Western Wireless is
concentrating on its older, analog cellular business, which
serves primarily small rural markets.
Aerial had 1998 revenue of $49.3 million. VoiceStream's
second-quarter revenue nearly tripled to $105.1 million. It had a
second-quarter loss of $132.8 million.
Shares of other wireless companies that use the GMS
technology gained amid speculation they could be takeover targets
as VoiceStream expands. Powertel Inc., a West Point, Georgia-
based wireless company, gained 3 3/4 to 50 3/16. Sonera owns
about 9 percent of Powertel.
``We like the Powertel folks. They've done a good job,'
Stanton said on a conference call.
After VoiceStream's transactions are completed, its coverage
area will include all of the U.S. except California and Nevada,
where SBC Communications Inc. is the dominant wireless provider,
Lehman's Bensch said.
Credit Suisse First Boston Corp. advised Telphone & Data on
the sale.
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