Sprint affiliate Shentel buys fellow wholesale partner nTelos for $640M

Sprint (NYSE: S) wholesale partner Shenandoah Telecommunications, better known as Shentel, is buying fellow Sprint wholesale partner nTelos Wireless in a deal valued at around $640 million, including net debt. There had been speculation since May that such a deal would come to pass, and nTelos had been reviewing strategic alternatives.

Concurrent with the deal, Shentel entered into a series of agreements with Sprint, including the expansion of Shentel's "affiliate" relationship with Sprint. The deals essentially give Shentel responsibility for expanding the LTE network in the nTelos service area, and will give Sprint access to more spectrum.

The nTelos brand will be discontinued after the close of the deal and around 297,500 nTelos wireless retail customers will become Sprint-branded customers. Additionally, nTelos' retail stores will convert into Sprint-branded stores that will be managed by Shentel.

Shentel said Sprint has agreed to transition around 291,000 existing Sprint wireless customers in the nTelos market to Shentel, bringing the total new Shentel customers under the Sprint brand in the market to around 581,000. With the 435,000 current Shentel Wireless customers, Shentel's total wireless customers will exceed 1 million.

Most significantly, nTelos' Strategic Network Alliance with Sprint, which calls for nTelos to provide wholesale roaming services for Sprint customers, will end with the close of the deal.

NTelos shareholders will receive approximately $208 million in cash, or $9.25 per share, representing a roughly 60 percent premium over the 30-day volume weighted average price of nTelos' stock as of Aug. 7, 2015. Shentel will assume nTelos' net debt, which stood at $431 million as of June 30. The deal is expected to close in early 2016.

William Pirtle, Shentel's vice president of wireless, told Harrisonburg, Va.-based TV station WHSV that Shentel intends to preserve many nTelos jobs and "to bring all the retail store employees over along with their management, all of the operations folks in the field and all of their management and most of the engineering folks and some of their management. There is some overlap in the functionality between the nTelos headquarters location and Sprint headquarters location." He added that those workers in the overlapping areas will learn about the future of their jobs next year when the deal is closed.

In a separate announcement, Sprint and Shentel said under their new agreements, Sprint will pay Shentel up to $252 million over five to six years "through a reduction in Sprint's retained revenues under the affiliate agreement in consideration for spectrum, customers, and value derived from the amended Shentel affiliate relationship and related commercial terms."

Upon closing of Shentel's purchase of nTelos, Sprint will receive nTelos spectrum covering 5.4 million POPs in parts of Virginia, West Virginia, Pennsylvania, Maryland, Ohio, Kentucky and North Carolina. Shentel will terminate the existing network wholesale agreements between Sprint and nTelos, continue to upgrade the nTelos network to LTE and expand coverage in the areas with at least an additional 150 sites over the next three years, using spectrum acquired by Sprint and made available to Shentel as part of the deal.

Shentel will also be able to use Sprint's 2.5 GHz spectrum within its footprint. This will provide an enhanced and more complete network for the new and existing Sprint customers. As part of the transaction, Shentel and Sprint have also agreed to extend their affiliate relationship an additional five years to 2029.

Current Sprint and Shentel customers will not be impacted by the transactions, the companies said, and current nTelos customers do not need to take any immediate action. Once the transaction closes, the nTelos customers are expected to be able to continue to use their current phone, and Shentel, along with Sprint, will begin to transition the nTelos customers to the Sprint billing system and customer care services. 

NTelos is in the process of exiting from its eastern markets. NTelos had wanted to focus on markets in western Virginia and West Virginia where it has a stronger retail presence and benefits from its network deal with Sprint. NTelos had planned to shut down service in the eastern markets by mid-November.

Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata said in a research note that the deal is a "logical outcome" for nTelos, and that they expected the deal to be approved by regulators. They noted that nTelos "overlaps Shentel in areas outside of its Sprint Network Agreement wholesale footprint (~30% pop overlap), where Shentel operates the Sprint brand as an affiliate. While the transaction eliminates a fixed wireless operator in this region, given the company's sub-scale operations and difficult rural footprint, we expect the transaction to gain regulatory approval."

For more:
- see this nTelos/Shentel release
- see this Sprint/Shentel release
- see this Multichannel News article
- see this WHSV.com article
- see this News Leader article

Related articles:
NTelos now covers 53% of POPs with LTE, putting it ahead of year-end goal
NTelos CEO mum on rumors of merger with Shentel, but says board is looking at strategic opportunities
NTelos adds 8,000 subs in Q1, migrates 50,000 subs to Sprint's network
T-Mobile completes $56M purchase of PCS spectrum from nTelos
NTelos to sell off 103 of its remaining cell towers for $41M to Grain Management
NTelos reports improved traction in Western markets, aims to cover 50% of customers with LTE by year-end