With Wall Street credit gridlocked, potential deals to consolidate rural telephony companies are slim. It's a buyer's market - assuming the buyer can find the capital.
Leveraged buyouts are unlikely to happen in the current macroeconomic environment because of a strong allergy to issuing debt and the short-term demands for much higher interest rates on debt. Complicating the picture is a boost to hurting stocks on the belief that selling companies may be acquired in a deal; Embarq rose 2.7 percent on its revelation that it was attempting to sell. Stock premiums on the seller side may erode in the months to come if deals don't take place due to tight credit.
Analysts say rural telcos need to consolidate to compete with AT&T and Verizon and to increase their ability to invest in fiber projects on a scale similar to the larger Tier 1s. Rural telcos are seen as a safe investment because they have large cash flows to pay out high dividends.
For more:
- CNNMoney.com reports on difficulty of rural telco deals. Post.
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