default avatar
Welcome to the site! Login or Signup below.
Logout|My Dashboard

GCI agrees to buy $100 million of ACS; companies prepare to battle Verizon with new combination

Font Size:
Default font size
Larger font size

Posted: Tuesday, June 5, 2012 1:17 pm | Updated: 1:52 pm, Wed Jan 16, 2013.

GCI and ACS announced a deal today in which they will combine their wireless assets in a new entity called the Alaska Wireless Network, with GCI buying $100 million of ACS wireless assets. GCI is to manage the new firm.

The companies will continue to market and sell wireless service independently, a press release says.

The move comes as Verizon, the nation's largest cell phone carrier, prepares to expand its presence in Alaska.

Wilson Hughes is to be the CEO of the wireless firm and former Fairbanksan Greg Chapados is to become chief operating officer of GCI.

Standard & Poors said the transaction is "modestly negative" for GCI, which is to own two-thirds of the business and could have declining cash flow over the next several years.

ACS is currently getting a substantial amount of revenue from Verizon on roaming charges, but starting in mid-2013 that is expected to drop when Verizon enters Alaska directly, the ratings agency said.

"GCI would receive a lower initial proportion of distributions from the joint venture and we believe that free operating cash flow (EBITDA less capital expenditures) could decline over the next few years, resulting in lower distributions to GCI given the preferential fixed payments to ACS. These factors could cause us to revise our financial risk profile, which we currently view as "aggressive."

The GCI, ACS press release says:

Under the terms of the definitive agreements, which have been approved by the boards of directors of each company, GCI and Alaska Communications each will contribute to AWN their respective wireless assets, including spectrum licenses, cell sites and backhaul facilities, switching systems, and certain other assets necessary to operate a statewide wireless network. As part of the transaction, GCI will purchase $100 million of wireless assets from Alaska Communications and contribute them to AWN.

Alaska Communications will own one-third and GCI will own two-thirds of AWN. During the first four years of AWN's operations, Alaska Communications will be eligible to receive preferential cash distributions totaling $190 million. GCI will receive all remaining available cash distributions over the same period. Following the initial four year period, GCI and Alaska Communications will receive distributions proportional to their ownership interests in AWN.

AWN will be managed by GCI. Wilson Hughes, GCI's current chief operating officer, has agreed to serve as AWN's first president and chief executive officer (CEO). In the interim before the closing, Hughes will serve as GCI's executive vice president - wireless and lead a GCI team planning the post-closing transition to AWN. The AWN transaction is subject to Hart-Scott-Rodino review, requires FCC approval for transfer of Alaska Communications, and GCI's wireless spectrum licenses to AWN and is subject to other customary conditions. The transaction is expected to close by the second quarter of 2013.

"GCI and Alaska Communications are pleased to reach these agreements," said Alaska Communications president and CEO Anand Vadapalli and GCI president and CEO Ron Duncan. "The wireless business is capital intensive, requires scale to compete successfully against national carriers, and demands more spectrum than either company individually owns. By combining our respective wireless assets, GCI and Alaska Communications can provide a state-of-the-art Alaska wireless network owned and operated by Alaskans for Alaskans. We believe that The Alaska Wireless Network will provide the fastest, most geographically extensive, and most reasonably priced wireless services for Alaska subscribers, allowing us each to compete more effectively in the retail market."

From the start, AWN will have the most extensive coverage in Alaska, covering more than 95 percent of Alaska's population. Initially, AWN will serve the more than 250,000 GCI and Alaska Communications urban and rural subscribers and lifeline subscribers. In its first year of operations, AWN is expected to have EBITDA of approximately $120 million and capital expenditures of approximately $40 million. Synergies from the transaction are expected to total $30 million a year, starting in the second year of operations. The synergies are expected to be split equally between capital and operating expenses.

GCI expects to finance the $100 million asset purchase by refinancing its senior credit facility. Exclusive of transaction fees, Alaska Communications intends to use all the upfront cash proceeds of $100 million to strengthen its balance sheet by both paying down some of its term loan facility and increasing cash reserves. Evercore Partners served as advisor for Alaska Communications in this transaction.


Gubernatorial candidate, Bill Walker, is concerned that the state is in a ...

Bill Walker, candidate for governor, was born in Fairbanks before statehood. ...

Madden Real Estate

Find Yourself

You're ready for something new. New challenges, new places, new adventures. E...

Wes Madden 2014 Ad #2 Fairbanks