A Pitstop On The Information Super Highway

Verizon Wireless to Acquire Alltel and Become Nation’s Largest

June 5th, 2008 Posted in Breaking News

By Mike Dano

Hours after media reports indicated a deal was close, Verizon Wireless announced an agreement to acquire Alltel Communications L.L.C.for $5.9 billion in cash and assume $22.2 billion in debt, for a total package price of $28.1 billion. If approved, the deal would create the nation’s largest carrier with more than 80 million customers.

Verizon Wireless said it expects to immediately save $9 billion through the deal thanks to “reduced capital and operating expense savings.” The carrier said it would save around $1 billion in “incremental cost savings” in the second year after the agreement closes.

Many in the industry have long expected such a transaction. Both Verizon Wireless and Alltel operate CDMA networks, and both recently announced plans to upgrade their networks to Long Term Evolution (LTE) technology, a 4G standard that promises faster data connections.

But Verizon Wireless could face significant challenges in attempting to finalize its acquisition of Alltel. Federal authorities are sure to carefully consider antitrust concerns. For instance, Alltel was forced to divest some properties in southern Minnesota following its acquisition of Western Wireless Corp. in 2006. Those markets were eventually acquired by Rural Cellular Corp., which Verizon Wireless is now in the process of acquiring.

If the deal is consummated it would cap an eventful year for Verizon Wireless. The carrier inked a $2.67 billion deal to acquire Rural Cellular (although the deal has not yet been approved), it earlier this year paid $9.4 billion for 700 MHz spectrum in the Federal Communications Commission’s auction, and announced plans to both open its network to devices and applications from other suppliers as well as upgrade its network to Long Term Evolution technology.

Interestingly, Verizon Wireless’ purchase of Alltel has precedent, both good and bad. AT&T Corp. purchased Cingular Wireless L.L.C. for $41 billion, a deal that many have hailed as successful, while Sprint Corp. acquired Nextel Communications Inc. for $35 billion, an expense the carrier recently had to write off as largely a failure.

Verizon Wireless’ stock was up more than 5% on the news to around $39 per share.

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