AT&T's Latest Prize: Dobson Communications

You may have been too absorbed playing with your new Apple (Nasdaq: AAPL  ) iPhone over the weekend to notice that the iPhone's exclusive U.S. carrier, AT&T (NYSE: T  ) , announced another major acquisition -- that of regional wireless service provider Dobson Communications (Nasdaq: DCEL  ) . While much smaller than recent acquisitions of SBC and BellSouth, the deal is nonetheless significant in helping boost AT&T's presence in some underserved regional markets.

The deal will have AT&T paying $13 for each share of Dobson, valuing the company at $2.8 billion. When consideration is given for net debt on Dobson's books, AT&T is paying approximately $5.1 billion to capture all 1.7 million of Dobson's subscribers. The $13 per share represented a nearly 17% premium to the market price of Dobson's shares before the merger announcement.

The value of the deal is also at a slight premium to the recent private equity buyout of much larger regional service provider Alltel (NYSE: AT  ) . In that deal, TPG Capital and GS Capital Partners took a $27.5 billion hit, or 9.8 times Alltel's EBITDA, to take control of the company. With a significant amount of debt on Dobson's books, AT&T's $5.1 billion consideration for the company comes in around 10.9 times EBITDA.

AT&T justified the price paid for the rural communications company through the savings and synergies it offered to the combined entity. Since AT&T has been paying Dobson for allowing its customers to roam on its network in rural areas, that cost can be eliminated going forward. And the company estimates the merger will have a minimal impact on earnings -- only $0.03 to $0.04 a share in the first year -- and add to them in the second year and beyond.

The new influx of subscribers from Dobson will also help AT&T stretch its subscriber lead over Verizon Wireless, a joint venture between Verizon Communications (NYSE: VZ  ) and  Vodafone (NYSE: VOD  ) . With most early reports showing a highly successful iPhone launch that is stealing customers away from other carriers, both events together make a powerful one-two combo punch at the competition.

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Fool contributor Dave Mock is absorbed with watching other people absorbed with their iPhones. He owns no shares of companies mentioned here. He is the author ofThe Qualcomm Equation. Vodafone is an Inside Value recommendation. The Fool's disclosure policy is valued at a rich premium.


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