More Wireless Carrier Transactions – Ntelos
Sprint PCS affiliate Ntelos has been in financial difficulty for the entire millennium so far, and now the WSJ reports that Quadrangle Capital Partners and Citigroup Venture Capital are playing a buyout for $750M. NTelos emerged from Chapter 11 protection in late 2003, and now has $248.6M in operating revenues and $26.5M in net income for the first nine months of 2004. What we wonder about is the motivation to buy a Sprint PCS affiliate, all of which have been under financial pressure since Sprint has reduced the payments it offers, for example a reduction of inbound roaming rates. These reductions are commensurate with overall lowering of per-minute prices in the US, but the affiliates margins are, for the most part, precarious if indeed black at all. Some have speculated that Sprint is deliberately squeezing affiliates so that they can go bankrupt, re-organize their finances, and then emerge with lower cost structures – none of which harms Sprint shareholders. Either way, being a Sprint affiliate is a tough role, so what are Quadrange and Citigroup after? Is it that they see Ntelos as an operation that can be improved by different management, do they see it as currently undervalued, or do they see an opportunity to buy more than one affiliate at low prices, and then get better scale economies? We’ll have to wait and see.