Verizon to Buy Alltel for $28.1 Billion

[Dr. Whiplash]

Verizon Agrees to Buy Alltel for $28.1 Billion
New York Times / June 5 2008
By Andrew Sorkin and Alura Holson

Verizon Communications agreed on Thursday to buy Alltel for about $28.1 billion, including the assumption of debt, creating the nation’s largest cellular telephone provider. The deal catapults Verizon’s wireless business ahead of AT&T Wireless, which falls to No. 2, followed by Sprint Nextel and Deutsche Telekom’s T-Mobile. The combination of Verizon, based in New York, and Alltel, based in Little Rock, Ark., will create a company with more than 80 million subscribers. Verizon adds coverage in the Midwest and the South.

Under the terms of the deal, Verizon will acquire the equity of Alltel for $5.9 billion and assume $22.2 billion in debt. The companies hope to complete the transaction by the end of the year.

“This move will create an enhanced platform of network coverage, spectrum and customer care to better serve the growing needs of both Alltel and Verizon Wireless customers for reliable basic and advanced broadband wireless services,” Lowell McAdam, the president and chief executive of Verizon Wireless, said in a statement.

Shares of Verizon Communications were up about 5.7 percent in mid-morning trading.

The transaction represents one of the quickest flips in corporate history: Alltel’s owners — TPG, formerly the Texas Pacific Group, and Goldman Sachs’s private equity arm — just completed buying the company last fall for about $27.5 billion.

The deal appears to be driven in part by Goldman Sachs and several of the large banks that financed the original deal seeking a way out of it. Citigroup, Barclays, Royal Bank of Scotland and others were never able to sell all of the debt, which was sitting on their own books at a loss.

Verizon and Alltel have been in a merger dance for years. Mr. McAdam and Scott Ford, Alltel’s chief executive, have known each other for a long time and have been talking on and off about a combination over the last couple of years, according to a person apprised of the talks before the deal was announced. Rumors surfaced in 2005 that Verizon and Alltel were considering a merger and talks reignited last year, before TPG and Goldman Sachs bid for the company.

Previous efforts to strike a deal faltered in part because of opposition from Verizon’s partner in its wireless business, Vodafone, which owns a 45 percent stake. Roger Entner, a senior vice president at IAG, a market research firm, said that the last time Verizon sought to acquire Alltel, Vodafone rejected the deal because the merger would have diluted its position in the combined companies. The current deal is being financed entirely by debt to avoid diluting Vodafone’s stake, people involved in the discussions said.

Analysts say that Alltel, which has about 13 million subscribers, is a logical fit for Verizon. First, they share the same cellphone technology, called CDMA, and second, Alltel has customers in regions not serviced by Verizon. The person apprised of the talks said there would be layoffs, but they would be largely limited to marketing, finance and other staff functions.

“You have to see it in context of how Verizon is trying to reinvent itself as a wireless versus a wireline company,” said Craig Moffett, a communications analyst at Sanford C. Bernstein & Company. “The more they do, the faster they do it, the better.”

Despite being privately held, Alltel files quarterly earning reports with regulators because it has some publicly held debt. The company reported a net loss of $124.9 million for the three months ended March 31, its first quarter as a private company. Many companies that have been taken private report net losses because of higher debt interest payments.

The price on Alltel’s publicly traded debt rose sharply after CNBC reported the talks on Wednesday afternoon. The company’s loans traded around 98 cents on the dollar, while bonds paying a 7 percent coupon that mature in 2012 shot up 12 cents, trading at about par, according to Standard & Poor’s Leveraged Commentary and Data.

Some analysts have questioned whether Alltel could continue to grow, given its buyout-related debt. The company reported nearly a tenfold increase in interest expense in its first quarter, to $496.5 million, from $46.7 million last year.

“While we believe the results were solid, the results did not address our main concerns about this company, and we continue to believe that the company’s smaller scale relative to its competitors and its high leverage mean that it will be disadvantaged in the long term,” Zhiping Zhao and Anna Basanskaya, analysts at CreditSights, wrote in a research note last month.

But unlike other companies that have been taken private, Alltel continues to pay certain bonds, known as pay-in-kind toggles, in cash rather than by issuing more notes. Issuing notes is sometimes seen as a sign of distress.

The decision by TPG and Goldman to sell their share in Alltel may also suggest what is in store as smaller, independent players find it harder to go it alone. “It makes you wonder what Goldman and TPG see which made them change their minds so quickly,” said Mr. Moffett, the analyst. “In the wireless industry there is no place for independence. It is the land of the giants.”

[AmpedNow]

Verizon and AT&T are in a race to be the nation's largest carrier. AT&T has held that title since the Cingular buyout. But should this deal go through, Verizon will one again be far ahead.

We will soon enough have only two carriers to choose from. Verizon and AT&T are doing to the cellular industry what CC and CBS done to Ma & Pa radio operations in medium and large markets: pricing them out, or undercutting them to where they can't afford to compete, them buying them up.

[Big Media]

Time for an AT&Fee/Sprint merger? Virgin? T-Mobile? Who else?

[The Interpreter]

Alltel customers worry about Verizon deal:

http://ap.google.com/article/ALeqM5jnqp ... gD91466K80

[Big Media]

I would be worried, too. I have had AT&T, Alltel, and Verizon. They are listed in order from best to worst, IMO.

[Lester]

I can't wait to see the next Alltel commercial.

"You may have the largest network... CHAD... but you're MY bitch now!"



WHIIIIIIZAHD!

[cgarison]

This deal doesn't touch my emotions either way. I lost interest in Alltel after the phone that I bought for $300.00 broke after 14 months of use and then replaced through insurance with the free model that was available with a 2 year contract. It took me a year to get my ducks in a row, but I did leave Alltel for that reason because AT&T actually replaced a broken year old phone with a better phone than I originally had.

[David Paleg]

My problem with AllHell is that they stopped carrying replacement batteries for my old bulky Motorola before my two year contract was up. Since the model was discontinued, they stopped carrying any accessories. It's not like I wanted a fancy Star Trek faceplate or a sequined carrying case. Just something to keep the phone working. I went to a competitor and got their last two packs of batteries for the phone. Then, about a year later, I switched to AT&T and got a nice compact flip phone.

[Tom Taggart]

Alltel and Verizon are CDMA, AT&T and T-Mobile (Deutsche Telekom) are GSM.

Different systems, different equipment. While some phones can talk to either system, most can't.

[Waveguide]

It's all 'bout the "Cha-Ching!!!!!!!!

( from the happy stock holders club...... )

[cgarison]

Alltel and Verizon are CDMA, AT&T and T-Mobile (Deutsche Telekom) are GSM.

Different systems, different equipment. While some phones can talk to either system, most can't.

Verizon Wireless is partnership between Verizon (55%) and Vodafone(45%). http://www.vodafone.com/hub_page.html

Also, Sprint/Nextel is CDMA. But with their lousy customer support and crappy billing practices, most people that have been with them for any length of time do not want to go back.

[sportsvoice]

I think the legacy Nextel systems use the Motorola proprietary iDen scheme, since they were operating in blocks of what was trunked 2-way spectrum. However, at one point I heard they were being migrated elsewhere in the spectrum due to the iDen sites causing interference to trunked 2-way licensees nearby, so they may have gone CDMA at migrated sites.

[Hoosier Daddy]

I think the legacy Nextel systems use the Motorola proprietary iDen scheme, since they were operating in blocks of what was trunked 2-way spectrum. However, at one point I heard they were being migrated elsewhere in the spectrum due to the iDen sites causing interference to trunked 2-way licensees nearby, so they may have gone CDMA at migrated sites.

The iDen sites tore the hell out of trunked 800 MHz public safety systems. I believe the FCC mediated a deal between NexTel and all the 9-1-1 licensees that were receiving interference, with most of the 9-1-1 systems relocating to either 900 or 700 MHz and NexTel picking up the tab.

[sportsvoice]

I think the legacy Nextel systems use the Motorola proprietary iDen scheme, since they were operating in blocks of what was trunked 2-way spectrum. However, at one point I heard they were being migrated elsewhere in the spectrum due to the iDen sites causing interference to trunked 2-way licensees nearby, so they may have gone CDMA at migrated sites.

The iDen sites tore the hell out of trunked 800 MHz public safety systems. I believe the FCC mediated a deal between NexTel and all the 9-1-1 licensees that were receiving interference, with most of the 9-1-1 systems relocating to either 900 or 700 MHz and NexTel picking up the tab.

Yeah, it was either that or Nextel moved. There was a bunch of stuff I was reading about via the SBE about TV BAS spectrum relocation, but I didn't pay a whole lot of attention to it so I can't remember who was involved and why.

[Waveguide]

Let me point out something about Sprint/Nextel.

Sprint / Nextel are two very non-compatable systems.

Sprint = 1900mHz PCS nationwide licenses, except for some very small affiliates that are 800mHz.
(Sprint does NOT own those licenses). Biggest deal here is the CDMA format.
The future of Sprint is questionable. And, no, not even AT&T could pump out that much money at one time to do a flash covert to GSM at one time for a nationwide change out. Just to replace the existing base of handsets would be gross.
Stay tuned for the sale of this one.

Nextel = 800 mHz eSMR. (enhanced Specialize Mobile Radio). Orginal licenses scattered thru the 851 to 868 mHz.
The original deal for the frequency changes, and re-farming the bands for the Trunking/SMR folks is 5+ billion dollors.
This is happening in regions under a FCC approved schedule. And they are doing very little with the PCS licenses they aquired in the deal for the re-farming. They got the new spectrum first, now they have the "schedule" and can drag their feet.
Biggest issue this Nextel is the Motorola iDEN format. This perverted GSM narrow-band over-the air format is compatible with NOTHING. There is no Nextel system sites using CDMA. They rarely share the same sites for co-location. iDEN is a dead-end format. Motorola and Nextel admit it. But, it does work, and the Nationwide direct-connect, ( PTT, or whatever you want to call it), works the best of any other provider. Only other plus to Nextel is the fact that there is a world wide presence of iDEN, in parallel with GSM. The sale of this will be a big shocker as to which of the three interested parties may swallow up this hog. Even in the good ol' USA, there are "other" providers of iDEN services on a regional basis.

my 2 paso's ......