Verizon Wireless Buying Alltel for $5.9 Billion

Verizon Wireless has agreed to buy Alltel Corp. for $5.9 billion, which would make it by far the largest cellular carrier in the U.S.

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, including Oklahoma, where subscribers are clustered in the Oklahoma City and Norman areas, said AllTel spokesman Andrew Moreau.

“We hope to close the deal by the end of the year, and nothing will change until then,” Moreau said in a telephone interview. “AllTel handsets, coverage area, rate plan and bill will remain the same until closing.”

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.

On Wall Street, the deal went over well. Shares of New York- based Verizon Communications Inc., the controlling parent of Verizon Wireless, rose $1.98, or 5.4 percent, to close at $38.96, unusual for a company spending so much on an acquisition. 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 CEO Ivan Seidenberg said Alltel is “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.

The Tulsa World Business staff contributed to this report by the Associated Press.

Originally published by Staff and Wire reports.

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