- The Washington Times - Monday, March 29, 2004

Arch Wireless Inc. yesterday purchased rival Metrocall Holdings Inc. of Alexandria for more than $326 million in cash and stock.

The struggling companies, which both have gone through bankruptcy to eliminate debt, market wireless messaging and paging services to a shrinking audience.

Arch Wireless, the nation’s largest wireless paging company, said it plans to acquire Metrocall for $150 million in cash, paying stockholders $75 for each share they hold. In addition, Metrocall shareholders would receive a 27.5 percent stake in the new company. That share of the new company would be worth about $176 million, based on the closing price of Arch Wireless stock yesterday.

The heads of both companies said falling revenue in the face of fierce competition from wireless telephone companies prompted the proposed transaction.

“Every major independent paging company has been forced to restructure its balance sheet through the bankruptcy process as a result of the decline” in revenue, Metrocall President and Chief Executive Vincent Kelly said during a conference call.

Metrocall filed for Chapter 11 bankruptcy protection in June 2002, listing assets of $189.3 million and debts of $937 million. It emerged from bankruptcy in October 2002. Arch Wireless, based in Westborough, Mass., filed for bankruptcy protection in December 2001 and emerged the following year.

The number of paging customers nationwide has fallen from 40 million in 1999 to just 12 million.

Wireless telephone companies, whose phones let customers send text messages, boast 150 million subscribers.

Mr. Kelly said repeatedly yesterday the two paging companies have a better chance surviving together than they do if they remain apart.

Cell-phone companies “continually lower the price point on their data services … it is a real threat, not a perceived threat, and by putting these two companies together we can mitigate that threat,” Mr. Kelly said.

The combined company can save money by cutting duplicate costs and by operating a single network, he said. But Mr. Kelly declined to disclose how much the combined company could save.

The new company would market itself as a low-cost alternative to wireless messaging services.

Under the terms of the deal, Arch Wireless shareholders would own 72.5 percent of the new company, which will be renamed and based in Alexandria.

“We’re excited about the combined entity, but the terms are such that Metrocall shareholders are being significantly shortchanged,” Matt Schaenen, research analyst at asset manager Penn Capital Management, said after the call.

Mr. Kelly would take over as chief executive officer of the new company.

Metrocall would place four persons on the combined company’s board of directors and Arch Wireless would place five persons on the board.

The companies need approval of shareholders and federal regulators to complete the transaction.

Metrocall shares fell 7.7 percent yesterday on the Nasdaq Stock Market to close at $69.15 a share.

Shares of Arch increased nearly 35 percent on the Nasdaq to close at $32.31 a share.

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