Sunday, March 05, 2006

Hit #83

AT&T confirmed that it is buying BellSouth (BLS) in a deal valued at $67 billion. The all-stock deal values BellSouth at $37.09/share, a premium of 60.6% over my cost-per-share of $23.1/share.

The deal is completely unexpected at this point. SBC bought the real AT&T not too long ago, subsequently renaming itself as AT&T. At the time of that deal, BellSouth had figured in rumors, on all sides of a possible deal - BellSouth as a buyer of the original AT&T, BellSouth as a merger partner for SBC, BellSouth as a target for Verizon/Sprint etc.

I expected the new AT&T to buy back Cingular, the SBC/BellSouth wireless joint venture, from BellSouth, eventually. This megadeal won't be good for investors in the long run, and definitely won't make things better for customers. It will definitely mean mega-paydays for top executives on all sides, just like in the previous deal. Having been a suffering customer of SBC/AT&T/Cingular I would definitely welcome an improvement in service even more whole-heartedly.

The earlier buy of the original AT&T scored a hit for me. Just like in that deal, the best part is that the premium paid makes the effective dividend yield for the received shares much higher. SBC sports a healthy yield, and I don't expect that be cut.

What next ? Verizon, Sprint, Qwest will all be forced to look for deals of their own to challenge this new giant. Qwest is the weakest, with a staggering debt-load, and Verizon will likely give it another look. It would definitely help, if apart from receiving long prison terms, various Qwest executives now on the dock are forced to forfeit their accounting-fraud aided bonuses/options/perks.

UK major, Vodafone, may also be looking to do a deal of its own, after announcing just last week that it is selling its Japanese assets to appease investors. Vodafone shares had been losing value steadily before that announcement. Just today it announced that the proceeds from that sale would be used to make a one-time dividend payout of 5 billion pounds, one of the largest such payouts ever. It may have second thoughts after the AT&T/BellSouth deal news.

Who else is in play now ? I expect Rural Cellular (RCCC) to be acquired. I own shares, which have gained almost 100% since my purchase. Centennial Communications (CYCL) and Dobson Cellular (DCEL) are also targets, but the latter looks fairly valued now.
Sprint is also likely to acquire its reseller, Ubiquitel (UPCS), having bought out all the other resellers over the last year.

I own a few Qwest shares, bought at a significant discount to the current price. They look expensive now.

Leap Wireless (LEAP) will also get a good look by potential acquirers. The stock isn't cheap more.

Previous hit - KeySpan (#82)


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