Reports: Verizon Wireless in talks to buy Alltel for $27B: Deal would create new No. 1

Verizon Wireless is going for biggest fish status. The little fish? Alltel Communications L.L.C. Verizon Wireless, according to media reports, is in talks to purchase the industry’s No. 5 carrier for $27 billion, allowing Verizon Wireless to swim past AT&T Mobility as the nation’s No. 1 mobile carrier.
Acquiring Alltel’s 13.2 million subscribers would put Verizon Wireless at more than 80 million subscribers, a few laps in front of AT&T Mobility and its 71.4 million customers. According to reports, the $27 billion purchase price comprises mainly debt and a small amount of cash. At the close of the first quarter, Alltel was sitting with about $23.5 billion in debt.
Thus, the deal would leave Alltel’s current private-equity owners with little to show for their efforts. A pair of firms, TPG Capital L.P. and the Goldman Sachs Group Inc., snapped up Alltel in a $27.5 billion deal that closed last year.
“At the price reported in the press, it would seem to me that the owners of Alltel are looking to get out from their large debt load that was used to acquire Alltel less than a year ago,” wrote Walter Piecyk of Pali Capital. “We are also very concerned about the state of the wireless industry, underscored by T-Mobile aggressive pricing on an unlimited family plan today. If Verizon is starting to see a slow down in the growth of its wireless business that we believe is happening, an acquisition would be a good way to gain scale and perhaps deflect further examination of its organic weakness.”
Further, according to reports, Verizon Wireless’ ownership will not change; Vodafone Group plc would retain its 45% stake in the company, with Verizon Communications Inc. still holding 55%.
Alltel could not be reached and Verizon Wireless declined to comment on the news.
Verizon’s stock was down slightly in trading after the news to around $37 per share.
If the deal is consummated, it would cap an eventful year for Verizon Wireless. The carrier inked a $2.67 billion deal to acquire Rural Cellular Corp. (although the deal has not yet been approved), it earlier this year paid $9.4 billion for 700 MHz spectrum in the Federal Communications Commission’s auction, and announced plans to both open its network to devices and applications from other suppliers as well as upgrade its network to Long Term Evolution technology.
Interestingly, Verizon Wireless’ purchase of Alltel has precedent, both good and bad. AT&T Corp. purchased Cingular Wireless L.L.C. for $41 billion, a deal that many have hailed as successful, while Sprint Corp. acquired Nextel Communications Inc. for $35 billion, an expense the carrier recently had to write off as largely a failure.