TelephonyOnline has a nice article about CenturyTel's acquisition of Embarq. The gist of it is that Embarq (EQ) turned down a higher offer to take the CenturyTel (CTL) deal, the reason being that it was the better deal in the long term. That's not that uncommon, I recall that MCI turned down a higher offer from Qwest (Q) to go with Verizon (VZ). In this case, the competing offer was at one time partly cash, and Embarq replied it was only interested in all-stock deals.
I hadn't really thought about it that way. It seems as if cash is king most of the time, after all it's harder for big shareholders to dispose of a big stock position - they have to want to hold it. And I guess that's the point right now. Embarq's shareholders don't want to sell out for cash at these prices, their shareholders still want to have chips in the game. It's just that their stack is too small on its own.
I think the same goes for other potential telecom M&A activity that seems likely to liven up in 2009. There are many fiber properties out there whose stack of chips is too small, but whose shareholders don't want to sell at the bottom. They will, like Embarq, be looking for stock deals. This crisis is not like the last one, when Cincy Bell sold Broadwing for about $100M cash, Level 3 picked up Genuity for similar cash peanuts, and all sorts of other deals like those went down. Now is not the time for cash buyouts, because nobody really needs one - they're all relatively healthy. And since everyone is down, a stock for stock deal often isn't much different now than it would have been a year ago or will be next year.
So when M&A season opens again, and it will, I look for all-stock deals to lead the way. Unless of course cheap money makes a comeback, but that doesn't look likely for a long while.
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