Verizon Wireless agrees to buy Alltel
$28.1b cash, debt deal would create top US provider
SAN FRANCISCO - Verizon Wireless agreed to buy Alltel Corp. for $28.1 billion in cash and debt to overtake AT&T Inc. as the biggest mobile phone company in the United States.
The deal is worth 2.1 percent more than the $27.5 billion TPG Inc. and Goldman Sachs Group Inc. paid last year to take Alltel private. The acquisition includes about $5.9 billion in cash and $22.2 billion in debt. Parent Verizon Communications Inc. rose the most in more than five years in New York trading.
Verizon Wireless chief executive Lowell McAdam gets 13 million clients and plans to reap $9 billion in total savings from the purchase, which may help him offer discounts. The sellers make a 28 percent profit on their investment, while their lenders are repaid almost in full as Verizon uses its A credit rating to refinance the Alltel debt on their books.
"The banks may benefit, but ultimately, the real impetus for TPG selling is they achieved a substantial return in a short period," Chris Taggert, an analyst at fixed-income research firm CreditSights Inc. in New York, said in an interview.
The purchase will allow Verizon Wireless, jointly owned by Verizon Communications and Vodafone Group PLC, to start offering service in 57 rural markets, according to a statement yesterday. Basking Ridge, N.J.-based Verizon Wireless said the transaction may help save up to $1 billion in the second year after it closes by reducing advertising and roaming costs.
Verizon Communications rose $1.98 to $38.96 on the New York Stock Exchange. The gain was the largest since April 2003. Vodafone's US shares climbed $1.52 to $31.62.
Banks are under pressure to get leveraged buyout loans off their books after taking more than $386 billion in asset write-downs and credit losses triggered by the collapse of subprime mortgages. They are sitting on more than $77 billion of loans from the buyout boom of 2006 and 2007, according to New York's CreditSights, down from a peak of $230 billion last year. Some have been sold at a discount to private-equity firms such as Fort Worth-based TPG.
Standard & Poor's cut its outlook on Verizon to negative from stable yesterday because of the increase in debt. The ratings service maintained its A corporate credit rating and said it viewed the transaction as favorable.
The Alltel LBO was the biggest in telecommunications history. US telephone companies, including Verizon, and Alltel, are adding record numbers of wireless users. Verizon added 1.5 million mobile customers last quarter, beating the 1.3 million new users at AT&T, the largest US phone company overall. Alltel added a record 385,000 net customers.
AT&T, which gained control of the Cingular mobile phone network with its 2006 purchase of BellSouth Corp., has about 71.4 million wireless users. With the addition of Alltel, Verizon Wireless would have about 80.2 million.
The companies plan to complete the deal by the end of the year if the transaction can get regulatory approval.
An Alltel-Verizon combination might be reviewed by the Justice Department because of antitrust concerns, Edward Jones & Co.'s Rick Franklin said before the announcement. While Verizon may have to sell off some assets, gaining regulatory approval shouldn't be a problem, said the St. Louis analyst.
Before the buyout, chief executive Scott Ford spun off Alltel's landline unit and bolstered the wireless business with the $4.5 billion purchase of Western Wireless Corp. in 2005 and Midwest Wireless Holdings LLC for $1.08 billion in 2006. Ford will stay on as Alltel chief until the transaction is completed. 