Verizon Communications vz said Thursday that its Verizon Wireless unit has sealed the deal to buy Alltel, the USA's No. 5 wireless carrier, for about $28 billion.
The agreement calls for a cash payment of $5.9 billion and Verizon Wireless to assume $22.2 billion in debt, Verizon says. The deal is expected to close by the end of the year, pending regulatory approvals.
The deal gives Verizon Wireless more than 80 million customers, easily eclipsing AT&T to take the No. 1 spot.
AT&T has around 71 million subscribers. No. 2 Verizon has 67 million now; Alltel has 13 million, many of them in small, rural markets.
Founded in Little Rock in 1943, Alltel today is a $9 billion wireless company with customers in 34 states. Its customer service is considered top-notch, putting it on par with Verizon Wireless, which also ranks high consistently for its customer service.
The two companies also share a common technology: CDMA. AT&T's wireless services are built around the more common GSM standard that is used by 85% of global wireless users.
A Verizon-Alltel merger would have little impact on consumers, says Jane Zweig, CEO of The Shosteck Group, which tracks the wireless market.
"It's just going to make Verizon a little bigger," she says. Still, such a deal would give Verizon a bigger presence in smaller markets across the USA.
Alltel "has a very good network," Zweig says, enabling it to offer an array of advanced-technology wireless services, including mobile Web access.
Chasing the mobile Web has become a blood sport among the big carriers. As Web-enabled devices such as AT&T's Apple iPhone continue to grow in popularity, so, too, does pressure from consumers for better and faster Web access.
Verizon recently agreed to pay almost $10 billion to acquire a coveted cache of 700-megahertz wireless licenses, formerly owned by TV operators, that can enable superfast mobile data services. AT&T paid more than $6 billion.
Sprint, the No. 3 wireless carrier, has teamed with Clearwire and wireless visionary Craig McCaw to build an advanced wireless data network across the USA. The network is based on WiMax technology, a direct competitor of the next-generation wireless technology favored by Verizon.
Alltel, a merger machine for more than a dozen years, was acquired in November by TPG Capital and GS Capital Partners of Goldman Sachs for $27.5 billion. The purchase price represented a 23% premium over Alltel's then-trading price of $71.50 a share.
Alltel, no longer traded publicly, is a well-run company with a reputation for innovation, Zweig says. "It's one of those sleepers that people never paid much attention to." Now they presumably will, she says.
Verizon Wireless expects the deal to add immediately to earnings, excluding transaction and integration costs. It expects 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 Chief Executive Ivan Seidenberg said Alltel is a "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.