Verizon Wireless Agrees to Buy Alltel for $5.9B
NEW YORK (AP) - June 5, 2008 Verizon Wireless would also assume $22.2 billion in debt in the
deal, bringing the total value to $28.1 billion, the parties said
Thursday.
The deal comes just seven months after Alltel was taken private
by TPG Capital and a unit of Goldman Sachs Group. They paid $24.7
billion for the stock and took on $2.7 billion in debt, bringing
the value of that deal to $27.4 billion.
Alltel has 13.2 million subscribers in 34 states, mainly in
rural areas away from the coasts. Added to Verizon Wireless 67.2
million subscribers, the size of the combined company would surpass
the current U.S. cellular leader AT&T Inc., with 71.4 million
subscribers.
The parties expect the deal to close by the end of the year,
pending regulatory approvals. The deal is likely to face scrutiny
by the Department of Justice and the Federal Trade Commission, but
analysts expect it to pass.
Shares of New York-based Verizon Communications Inc., the
controlling parent of Verizon Wireless, rose $2.16, or 5.8 percent,
to $39.14 by late morning. Verizon Wireless' other parent is
Vodafone Group PLC of Britain, with a 45 percent share of the joint
venture.
Verizon Wireless expects that the deal to add immediately to
earnings, excluding transaction and integration costs. It expects
the deal to generate "synergies" of more than $9 billion due to
reduced capital and operating spending. Analysts believe Verizon
Wireless pays Alltel hundreds of millions of dollars a year in
roaming fees, since Alltel provides coverage in many areas where
Verizon Wireless does not.
In a statement, Verizon Communications Chairman and Chief
Executive Ivan Seidenberg said Alltel is a "a perfect fit," given
its valuable customer base and solid financials. He also pointed to
the fact that the carriers share the same network technology. AT&T
and another wireless carrier T-Mobile USA use an incompatible
technology.
The $28.1 billion Verizon Wireless is paying, including debt,
points to a small profit for the private-equity firms. The buyout
happened at a difficult time in the credit markets, and the banks
who financed the deal reportedly ended up holding some of the debt
on their books, rather than selling it. That put pressure on the
buyout group to cash out.
Talks between Verizon Wireless and Alltel were reported
Wednesday by CNBC and The Wall Street Journal. Based on those
reports, analyst Craig Moffett at Sanford Bernstein said the deal
could yield significant economies of scale.
"The consolidation of Alltel takes another step towards
rationalizing and consolidating the U.S. wireless industry,
something that must be viewed as a positive" from an investor
perspective, he said.
He said regulatory approval was likely, since the industry is
already viewed as consisting of four players: the national carriers
Verizon Wireless, AT&T, Sprint Nextel Corp. and T-Mobile USA. The
deal signals that "the days for a mid-sized, regional stand-alone
wireless operator are numbered," he wrote.