Reuters reports 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. Reuters has more