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Verizon Wireless to buy Alltel in $28.1 billion deal
|06 июня 2008|
Verizon Wireless said on Thursday it would buy rural mobile phone service provider Alltel Corp for $28.1 billion, including debt, which would vault it to first place in the U.S. market ahead of AT&T Inc.
Under the deal, Verizon Wireless would acquire the equity of Alltel for $5.9 billion and take on an estimated $22.2 billion in debt, mostly incurred when Alltel was taken private in November in a leveraged buyout by TPG Capital and Goldman Sachs Group Inc's GS Capital Partners.
The shares of Verizon Communications Inc, which owns 55 percent of Verizon Wireless, rose 6 percent after it said the deal would boost earnings by more than 10 cents a share in the first year after the deal, excluding items such as integration costs. The shares of Britain's Vodafone Group Plc, which owns 45 percent of Verizon Wireless, rose 3.8 percent.
"This is a way of getting growth from a market that's becoming fully saturated and beginning to slow down," said analyst Joseph Bonner at Argus Research.
"They get the bragging rights," he said, referring to Verizon overtaking AT&T as the largest U.S. player.
Verizon Wireless said the deal would create savings of $1 billion in the second year after closing, which is targeted for the end of 2008, pending regulatory approval. It forecast total savings of more than $9 billion by 2011, driven by reduced capital and operating expenses.
Verizon said the deal would be cash-flow positive in the first year, although it estimated integration costs at $1.1 billion to $1.2 billion in the first year and $500 million to $600 million in the second.
Verizon said it would take on about $5 billion in bridge loans in the next few days as part of the agreement at a $200 million discount to face value. It plans to assume about $2.3 billion of Alltel debt that predated the LBO and plans to set up new finance agreements to immediately pay back the remaining roughly $15 billion of debt when its Alltel purchase closes.
Verizon Wireless does not plan to pay Vodafone a dividend for the next three years, as it will use its cash to pay debt from the deal, but plans to review the dividend policy yearly.
Verizon's move comes about seven months after Alltel's $27.5 billion leveraged buyout, which was the largest-ever private equity investment in the U.S. wireless industry.
Analysts have speculated TPG and Goldman may have wanted to sell Alltel because of tight capital markets.
"All of the investment banks have constrained balance sheets right now and they need to free up their capital. Alltel was bought at a pretty heady time in the credit market," said Yvonne Bishop, assistant portfolio manager at Summit Investment Partners, which owns Verizon shares.
Verizon Wireless and Alltel, which has more than 13 million customers, together would have more than 80 million customers. AT&T ended the first quarter with about 71 million customers.
Alltel serves 57 primarily rural markets where Verizon Wireless does not operate, Verizon Wireless said. They both use a common network technology.
"We took a risk that, rather than overpaying, there would be a better day," Verizon Communications Chief Executive Ivan Seidenberg said of why the company was buying Alltel now rather than last year, when it went on the market.
He said he approached the private equity owners about the deal in April.
Verizon and Alltel have an overlap of about 15 percent of their network coverage, he said, but that did not necessarily correspond exactly to the amount of divestitures regulators will require. He expected any divestitures to be "manageable."
While analysts said the deal would likely win approval, consumer groups urged regulators to look closely at it as it would represent less choice for consumers in a market where Verizon Wireless and AT&T have already been winning customers from No. 3 U.S. mobile service Sprint Nextel Corp, which is suffering from poor customer service.
Gigi Sohn, president of the non-profit advocacy group Public Knowledge said the deal would "speed the unfortunate trend of giving consumers fewer, rather than more, choices in telecommunications services, while giving a few companies more control over the lives of consumers."
The companies have agreed on a break-up fee of about $500 million, Seidenberg told analysts on a call.
Vodafone executives said on a separate call that holding on to its Verizon Wireless stake gave it the value from the investment and that the deal was expected to immediately add to its adjusted earnings per share. Vodafone has frequently come under pressure from investors to cash in on Verizon Wireless.
Verizon Wireless said Morgan Stanley acted as financial adviser for the deal and would provide bridge financing and that Citibank, Goldman Sachs and RBS advised the sellers. Lehman Brothers and UBS advised Vodafone in the deal.
Verizon Communications shares closed up $1.98, or 5.4 percent, at $38.96 on the New York Stock Exchange. Vodafone shares rose 3.8 percent to close at 160.45 pence in London.