Today Centennial Communications (CYCL US), which is in the process of being acquired by AT&T for  USD 944m or USD 8.5 cash per share offer, saw a 9.6% drop from USD 8.12 to USD 7.35 on the back of no news. The acquisition has already been approved by CYCL shareholders and remains subject to HSR (USA) and FCC (USA) approval. On 02-July-09, AT&T informed the market that they expect completion and regulatory approvals during the third quarter of 2009. With clearances expected -with or without imposed divestitures or asset swaps- by September/October, we believe that the 14-Jul-09 share price drop represents a (short-term) buying opportunity as the merger spread widened out from 4.6% (annualised 22% return -assuming latest end-Sep 09 closing) to 16% (annualised 75% return). We believe that the intraday drop could  have been triggered by regulatory fears and/or margin calls or merger arbitrage fund liquidation(s) (similar liquidation  driven sell-offs as seen in the Anheuser-Busch, Genentech, Puget Energy merger situations). Although we feel there is regulatory risk in Puerto Rico where AT&T and Centennial will control approximately 40% of the wireless market share with America Movil (AT&T has 23% voting control) having another 25% share.  However with five carriers on the Island (AT&T, Sprint Nextel, America Movil, T- Mobile, Open Mobile),  the Puerto Ricon wireless market will remain a competitive market . Nevertheless, if there would have to be concessions offered, AT&T would be open to divesting the Puerto Rico wireless operations (CDMA) if necessary, as the most attractive Centennial properties for AT&T are the mainland U.S. wireless (GSM) operations.
 Given that the merger spread has been stable between 1 and 5% for the last 6 months (reflecting the regulatory risk), we recommend to play the technical anomaly and buy CYCL around USD 7.4, and playing the temporary narrowing of the 16% merger spread.