Price Communications Corporation

views updated

Price Communications Corporation

45 Rockefeller Plaza
New York, New York 10020
U.S.A.
Telephone: (212) 757-5600
Fax: (212) 397-3755

Public Company
Incorporated: 1979
Employees: 741
Sales: $270.51 million (2000)
Stock Exchanges: New York
Ticker Symbol: PR
NAIC: 57332 Wireless Telecommunications Carriers (Except Satellite)

Price Communications Corporation has historically been a nationwide communications company owning and then disposing of a number of television, radio, newspaper, cellular telephone, and other communications and related properties. Its primary holding in 2001 was Price Communications Wireless, Inc., which was engaged in the construction, development, management, and operation of cellular telephone systems serving more than 500,000 subscribers in Alabama, Florida, Georgia, and South Carolina. Price Communications was planning to sell this company to Verizon Wireless, Inc., the largest mobile-phone and paging company in the United States. If approved by the Federal Communications Commission and shareholders of both companies, the sale, valued at about $1.5 billion, would provide ample funds for Price Communications to make new acquisitions.

Highly Leveraged in the 1980s

Born in New York City, Robert Price attended local public schools and universities and became a lawyer. He made his entry into the broadcasting industry in 1963 when, using borrowed money, he took control of Atlantic State Industries Inc., heading a group of four radio stations and improving their financial performance. He sold his interest upon becoming deputy mayor of New York City in 1966. After a brief stint in government service, Price was an investment banker in the Wall Street firms of Dreyfus Corp., where he founded his own mutual fund, Price Capital, and—beginning in 1972—Lazard Freres & Co., where he became a general partner. He founded Price Communications in 1979, but the company was not activated until 1981, when funds were raised from a small group of elite investors, including Citicorp Venture Capital Ltd.; Michel David-Weill, senior partner of Lazard Freres; John Loeb, Sr., formerly of the investment firm of Loeb, Rhoades; and the estate of André Meyer, the Lazard Freres founder who had been his mentor.

The primary goal of Price Communications was to buy broadcast properties with a positive cash flow, improve their performance, reduce expenses, and produce long-term earnings growth. Using borrowed money, it sought to purchase companies, at a discount, that were located in medium-sized markets. After making its initial public offering of stock in 1982, Price’s first acquisition, in November 1982 for $6 million, was WO WO-AM, a radio station in Fort Wayne, Indiana. In the fall of 1983 the company purchased for $7 million WIRK-AM/FM of West Palm Beach, Florida, which was subsequently divided into two stations. Price also acquired at this time a San Francisco station, KIOI-FM, for $12.5 million. Its signal was the strongest west of the Mississippi River. Price Communications lost $643,556 on net revenue of $5.16 million in 1983, its first full year of operation.

By the fall of 1984 Price Communications had a roster of six radio stations, including WTIX-AM of New Orleans and KOMA-AM of Oklahoma City. Near the end of the year, the company purchased its first television stations, in East Peoria, Illinois, and Jefferson City, Missouri. For faster and further expansion, Price turned in early 1985 to the junk-bond market, raising about $80 million by issuing ten-year subordinated notes yielding an annual interest rate of 14.75 percent. The company also raised $12.4 million in 1985 through another public offering of its common stock. With the additional funds, Price paid off a $48 million bank loan, reserving the remaining sum for more acquisitions. The company could not yet show any profits, but cash flow from the stations was servicing its debt, and aggressive cost cutting held down expenses. Its Rockefeller Center headquarters, for example, employed a full-time staff of only four. These included two executives who were said to have been given an unusual degree of responsibility for women in the media business—but who were not well-paid by industry standards.

Price Communications held 11 radio and three television stations when it broadened its range in June 1985 by purchasing a daily newspaper, the New York Law Journal, and its weekly companion, the National Law Journal, for $20.5 million. The purchase also included other operations delegated to Price’s son-in-law, including a legal publishing company with about 30 titles, several legal newsletters, a computer information system, and a seminar business. Before the year was out Price Communications had purchased more radio and television stations and two New Jersey publishers, for a total of 13 acquired properties in 1985 at a cost of more than $141 million. Price Communications ended the year with net revenues of $37.19 million but a net loss of $12.34 million because of $15.75 million in interest expenses. Long-term debt plus redeemable preferred stock quadrupled during the year, to $281.58 million. Financing was almost entirely in the form of junk bonds underwritten by Morgan Stanley & Co.

Robert Price managed his empire by working up to 18 hours a day, seven days a week, traveling from city to city, sometimes closing deals in a day or two by paying cash on the spot. Surplus funds at hand were invested in stock market arbitrage deals. His staff—expanded to six—rode herd over 800 employees across the United States, cutting operating expenses and sometimes making changes in broadcasting staff or programming at their boss’s direction. Station managers who exceeded their projections for operating profits were rewarded with bonuses. Wall Street analysts generally supported the company, whose bond issues had been oversubscribed and whose stock was more than half-owned by institutions. Its losses were considered paper deficits because they were attributable to depreciation and amortization expenses. “Cash flow should be important in any industry,” one analyst told Wendy Diller of Financial World in 1986. “People who focus solely on earnings are missing the point.” By the end of the year Price Communications was one of the most highly leveraged companies in the communications business, with a net loss of $24.59 million on net revenue of $81.83 million and long-term debt plus redeemable preferred stock of $428.04 million.

Price made no effort to persuade anyone that he was interested in broadcasting properties for any reason other than their cash flow. Interviewed in 1988 by John F1. Berry of Channels, he said, “My daughter will tell you if I picked records for the radio stations we’d be listening to Winston Churchill speeches all day.” One former station employee said he reneged on a pledge to invest money in new equipment and was obviously only interested in readying the station for sale. Price demanded strong performance in covering local news, however, and developed a fearsome reputation for firing people who provoked his displeasure. An unfavorable on-air reference to his Missouri-based billboard company, for example, elicited a volcanic eruption. However, he generally left specific programming decisions to seasoned employees. One company executive told Brady, “I tell the staff, ‘If Bob calls, do what he wants. You won’t hear from him again for three years.’”

At the end of 1987, Price Communications owned nine radio stations, nine television stations, the legal information enterprises, and the billboard company, which was active in 11 states. Price halved its net loss that year, selling the New Jersey company in one deal and seven radio stations for $120 million in cash and notes in another, retaining a 27 percent interest in the stations. During 1987–88 he sold three television stations for about $100 million (and more than $39 million in profit). When Price Communications offered $50 million in convertible bonds in 1989, however, the prospectus stated that the purchaser of these stations—a start-up company called Fairmont Communications Corp.—was so debt-ridden as to cast “substantial doubt” as to the company’s ability to pay its debt to Price. By now a weakening economy was resulting in lower valuation for many of the media properties that Price Communications was counting on selling to service its debts. Fairmont subsequently failed to pay for its purchase and filed for bankruptcy.

The Road to (and from) Bankruptcy: 1990–95

After the brief but severe stock market crash of October 1987, short sellers gravitated to Price Communications like a flock of vultures, whom Price attempted to forestall by repurchases of company stock. Price Communications ended 1989 with a net loss of $40.2 million and, six months later, reported a negative net worth of $184 million. With the U.S. economy in recession, Price in October 1990 proposed a restructuring of its $283 million in outstanding junk-bond debt that would give the holders most of the equity in the company. This proposal and subsequent ones were rejected, and in March 1992 Price Communications filed for Chapter 11 bankruptcy protection. It also sold 75 percent of New York Law Publishing Co. to Apollo Investment Fund, L.P. in return for refinancing its debt to the fund. The company emerged from bankruptcy at the end of 1992, having distributed 94.5 percent of its common stock to holders of its subordinated securities and debentures.

Key Dates:

1981:: Price Communications enters the broadcasting field, seeking undervalued properties.
1985:: Price acquires 13 companies at a cost of more than $141 million.
1992:: Price Communications enters (and emerges from) bankruptcy.
1995:: The company sells the last of its broadcasting properties.
1997:: Price acquires Palmer Wireless, Inc., a cellular phone operator.
2000:: The company agrees to sell its cellular business to Verizon Wireless, Inc.

Price Communications still retained three television stations, six radio stations, and the billboard company. Robert Price’s interest now, however, was also becoming focused on cellular telephones, stemming from an earlier investment in a Wichita Falls, Texas, franchise, and minority stakes in the operations in several other small cities, including McAllen, Texas, and Biloxi, Mississippi, and in three rural areas in Louisiana, South Dakota, and Texas. (“Rural cellular operators today are characterized as cash cows, recording high cash-flow margins,” Lynette Luna of RCR—Radio Communications Report, observed in 1999.) PriCellular Corp., as this business, incorporated in 1990, was called, established headquarters in White Plains, New York, and was 74 percent owned by Price Communications at the end of 1992. It was 42 percent owned by Robert Price and his son Steven—its chief executive officer—when it went public in 1994.

Cellular Business Only: 1995–2001

Price Communications sold its radio stations in 1994 for a total of $17.5 million in profit and also sold the billboard company that year. In August 1995 Price Communications sold its three prior television stations for a total of $42 million. Two months later the company sold its last broadcasting property, WHTM-TV of Harrisburg, Pennsylvania, for $113 million. (Price had paid only about $45 million for the station in September 1994.) Virtually a shell corporation now, Price Communications recorded net revenues of just $2.96 million in 1996. Meanwhile, PriCellular was growing rapidly, its operating revenues increasing from $3.81 million in 1993 to $179.04 million in 1997, although it registered a net profit only in 1993. Price Communications invested $21.5 million in PriCellular stock and warrants during 1995–96. This business remained primarily a personal investment of Robert Price, however. When the company was sold to American Cellular Corp. in 1998 for a total of about $1.4 billion in cash and the assumption of debt, Price family members owned about 15 percent of the stock.

Price Communications got into the cellular wireless business in a bigger way in 1997, when—through a subsidiary—it acquired Palmer Wireless, Inc., for $486.4 million and the assumption of about $378 million in debt. Palmer, which entered the cellular business in 1987 in the Fort Myers, Florida, area, was providing cellular service under the Cellular One brand name to over 320,000 subscribers in Alabama, Florida, Georgia, and South Carolina in 1996. In that year it had net income of $6.09 million on net revenue of $134.36 million. Price Communications financed the purchase largely from the sale of high-yield bonds, although it sold the Fort Myers operation for $166 million and contributed $44 million of its own equity. The company’s long-term debt swelled to $909.43 million at the end of 1998, but it also had $205 million in cash and equivalents in its coffers.

Through its Price Communications Wireless, Inc.—a subsidiary of Price Communications Cellular Holdings, Inc.—Price Communications Corp. was providing cellular telephone service to 528,405 subscribers in 16 markets of the southeastern United States at the end of 2000. The company was selling its service as well as a full line of cellular products and accessories principally through its network of 41 stores, marketing these products through the Cellular One name. Price Communications’ revenue rose from $197.33 million in 1998 to $249.12 million in 1999 and $270.51 million in 2000. The net loss of $1.58 million in 1998 turned into net income of $10.22 million in 1999 and $28.38 million in 2000. The long-term debt was $700 million at the end of 2000. Robert Price owned 11 percent of the common stock of Price Communications in March 2000. His grandchildren owned an additional 13 percent.

In November 2000 Price Communications announced that it would sell Price Wireless to Verizon Wireless, Inc., the nation’s largest mobile phone and paging company, for about $2.06 billion, consisting of $1.5 billion in stock and assumption of about $550 million in debt. Price Communications would retain other assets valued at about $70 million. This agreement was signed in June 2001. The stock was to be valued at the price for the proposed initial public offering of Verizon Wireless shares, expected in 2002. The transaction was subject to approval by the Federal Communications Commission and company shareholders.