Shenandoah Telecommunications (Shentel) revealed earlier this month that it was in talks with the newly merged T-Mobile about Shentel’s future, which could mean selling its wireless business to the “un-carrier” or becoming an affiliate of T-Mobile.
Shentel was the last affiliate of Sprint, which allowed smaller affiliated companies to operate their own network assets and retail operations but offer services in their region under the Sprint brand. With the April 1 closure of the T-Mobile/Sprint merger, Shentel started the clock on a 90-day negotiation period with the new entity.
Wall Street analysts have mixed views on what will happen. B. Riley Financial analyst Zack Silver in an April 8 update for investors said they see the most likely outcome as T-Mobile buying Shentel’s 1.1 million subscribers at a slight premium to current wireless peer group valuations. In fact, they expect T-Mobile to strike a deal with Shentel to acquire the wireless business within the first 90-day window.
But Raymond James & Associates in a report on Wednesday said that while it looks as though investors are expecting or hoping that T-Mobile will buy Shentel’s wireless business, they like the affiliate model.
“We think moving the affiliate relationship from the old Sprint to the new T-Mobile would create value” and allow Shentel to further scale its relatively fixed cost business and “cooperate with the Magenta Maverick” to roll out 5G, wrote Raymond James analyst Ric Prentiss.
“We are encouraged by the affiliate model, and given that T-Mobile needs to focus on integrating the Sprint business and migrating the Sprint customers, plus the added level of uncertainty surrounding COVID-19 impacts, we feel the odds are less than 50/50%” that T-Mobile buys the Shentel wireless operations versus T-Mobile selling its in-footprint operations to Shentel. “And while, given the high valuation, especially in a COVID-19 driven macro market, we are on the sidelines, we will be watching with interest to see if T-Mobile is a buyer or seller.”
Prentiss added that the new T-Mobile has ample cash on hand and liquidity to acquire Shentel’s wireless operations. However, T-Mobile has a significant debt maturity schedule and gross Cost To Achieve (CTA) synergy program and might be more interested in receiving cash and increasing C-EBITDA than in paying out cash, he said.
“Plus, remaining an affiliate would allow SHEN to harvest its investments in Parkersburg and the Richmond Sliver and possibly expand into additional territories with a much better brand (e.g., Magenta Maverick T-Mobile vs. Weakened Warrior Sprint),” he wrote.
A spokesperson for Shentel said the company could not comment, and T-Mobile did not respond to a request for comment.
In a Securities and Exchange Commission filing earlier this month, Shentel acknowledged its management had been in discussions with T-Mobile regarding the future of the company’s wireless operations, but it did not intend to provide any additional updates or make any additional comments regarding the discussions “unless and until it is appropriate to do so.”
Shentel’s wireless segment was an affiliate of Sprint since 1995. Headquartered in Virginia, Shentel also offers cable and wireline services. In 2016, it acquired nTelos, a provider of wireless services in portions of Virginia, West Virginia, Maryland, North Carolina, Ohio, Pennsylvania and Kentucky.