Alaska Communications Systems (NASDAQ: ALSK) and General Communications Inc. (NASDAQ: GNCMA) Infrastructure Merger in the Works
Alaska Communications Systems (NASDAQ: ALSK) is an integrated communications company that provides service to clients in and outside of Alaska. The company connects to the lower 48 via two undersea fiber optic cable systems. The company began doing business in 1999 after acquiring the Alaska Telephone Utility and CenturyTel’s Alaska assets. ALSK is expected to realize an infrastructure merger with General Communications Inc. (NASDAQ: GNCMA) sometime in mid 2013 as Verizon (NYSE: VZ) enters the market. If the merger is approved, the two companies will still sell their own plans but clients will access the Alaska Wireless Network infrastructure which will be the result of the assets of the ALSK and GNCMA. The move will make both companies much more competitive with Verizon.
Verizon is the largest communications company in the nation measuring subscribers in the millions and they have the purchasing leverage that comes with the customer base. In order to compete, ALSK and GNCMA have made the joint decision to pool their resources. General Communications will take on two thirds ownership of the Alaska Wireless Network and Chief Operating Officer Wilson Hughes will be at the helm. Alaska Communications will own the remaining one third. As part of the deal, GNCMA will pay ALSK $100 million and Alaska Communications will use that money to pay down debt. If the merger proceeds as planned it will undoubtedly save on both capital and operating expenses for both entities. The network will reach 95 percent of Alaska, and have a consumer base of over 257,000, which still adds up to less clientele than AT&T (NYSE: T) has in Alaska.
ALSK has a market capitalization of $79 million and shares are trading at $1.73. GNCMA boasts a market cap of $341.54 million and shares are selling for $8.19 as of today. General Communication has had an annual average earnings growth of 12.9 percent over the past decade but there are a couple of things to think about when considering General Communications; GNCMA has one of the higher betas in the telecom sector at 1.4, (higher betas mean more volatility but also a potentially higher return) and the COO of the General Communications recently sold some 2,000 shares that he held in the company. Also consider that the door remains open for either company to pull out of the deal.
The jury is still out whether the deal will enhance either company as far as the bottom line is concerned. The hope is that the infrastructure merger will even the wireless communications playing field in rural Alaska. It will be interesting to see how all of this goes down.