Verizon Wireless said yesterday it would buy rural mobile phone service provider Alltel for US$28.1 billion ($37.1 billion) including debt, which would vault it to first place in the US market ahead of AT&T.
Under the deal, Verizon Wireless would acquire the equity of Alltel for US$5.9 billionand take on an estimated US$22.2 billion in debt, incurred when Alltel was taken private in November in a leveraged buyout by TPG Capital and Goldman Sachs Group's GS Capital Partners.
Shares of Verizon Communications, which owns 55 per cent of Verizon Wireless, rose 6 per cent after it said the deal would boost earnings by more than US10c a share in the first year after the deal, excluding items such as integration costs. Shares of Britain's Vodafone Group, which owns 45 per cent of Verizon Wireless, rose 3.8 per cent.
"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 US player.
Verizon's move comes about seven months after Alltel's US$27.5 billion leveraged buyout, which was the largest-ever private equity investment in the US wireless industry.
Analysts have speculated that 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. They both use a common network technology.
