USA - Verizon expansion

Verizon Wireless Confirms Deal To Buy Rival Alltel For $28 Billion

Verizon Wireless has agreed to acquire regional wireless carrier Alltel Corp. for $28.1 billion in stock and debt, a deal that will create the nation's largest cellphone company and a more potent rival to AT&T Inc. (T).

The agreement comes just seven months after Alltel was sold to TPG Capital and a unit of Goldman Sachs Group Inc. (GS) in a $27.5 billion leveraged buyout. The rapid resale is a powerful sign of how the credit crunch is roiling the business world.

Under the deal, expected to close by the year's end pending regulatory approvals, Verizon Wireless will acquire Alltel's equity for approximately $5.9 billion and assume approximately $22.2 billion in Alltel's debt.

Verizon Wireless - owned by Verizon Communications Inc. (VZ) and Vodafone PLC (VOD) - expects to realize synergies after integration costs of more than $9 billion. Verizon is looking at saving about $1 billion in the second year after completion of the deal through administrative cuts and by eliminating roaming fees currently paid to Alltel.

Verizon Communications shares were recently up 5.2% at $38.92. Vodaphone American Depositary Shares were up 1%, to $30.42.

The new entity will have more than 80 million customers, including Alltel's 13.2 million subscribers as of the first quarter. AT&T, currently the nation's largest cellphone operator, had 71.4 million customers as of its last quarterly report.

The agreement comes as the U.S. wireless industry faces an increasingly saturated market. About four in five U.S. consumers own a cellphone, according to the Federal Communications Commission. The main drivers of growth for the large carriers are making acquisitions or selling new mobile-data services such as Web access for phones.

AT&T and Verizon have also benefited from the sluggish performance of the No. 3. carrier, Sprint Nextel Corp. (S). The two companies have poached millions of customers from Sprint over the past year, but analysts see that as a temporary trend. "We are concerned that as industry growth continues to slow, Sprint's market-share losses will not be able to provide support forever," Morgan Stanley analyst Simon Flannery wrote in a research note Wednesday.

In order for the potential deal to pass muster with regulators, Verizon will likely have to divest itself of some regional assets, where its coverage overlaps significantly with Alltel or where both carriers are major players, people close to the talks said. The Department of Justice and the Federal Communications Commission would have to approve a merger.

Verizon was among the companies that considered buying Alltel last year when the company put itself on the block. But it ultimately concluded that the resulting increase in Alltel's share price made a deal too expensive. That provided an opening for private-equity firms, whose business it is to buy companies and later resell them at a profit.

Since the credit squeeze began last year, banks have been eager to escape financing commitments struck during the private-equity lending boom. Some lenders have used lawsuits and threats to win new terms.

The Alltel deal is the latest in a long line of mergers engineered by Verizon Chairman and Chief Executive Ivan G. Seidenberg. It is the second big-ticket transaction this year by Verizon Wireless, following its purchase of more than $ 9 billion in radio spectrum at an FCC auction.