The Alltel Wizard, Chad and his gaggle of nerdy telecom rivals are likely out of a job now that Verizon Wireless plans to acquire the mobile provider that’s staked its reputation on being the anti-behemoth.
Verizon on Thursday confirmed rumors it’s buying privately held Alltel in a bid to create the largest cellular network in the United States and claim the most subscribers. Further, Alltel uses the same CDMA technology as Verizon. That all looks good for Verizon. On the other hand, the deal doesn’t seem so great for Alltel employees, or, some say, consumers, despite speculation Verizon will add an MVNO-like tier to its business model.
Talk of a Verizon-Alltel pairing emerged late on June 4 when the Wall Street Journal reported that Verizon was in “sensitive” meetings with Alltel. Hours later, Verizon said, yes, it’s snapping up Alltel, for $28.1 billion — $5.9 billion in equity and $22.2 billion in debt. That number’s not much more than what equity firms Goldman Sachs and TPG paid last year to take Alltel private. They forked out $27.5 billion. So Verizon has scored, even though, said Ovum analyst Jan Dawson, Alltel’s owners “probably thought they would raise the asking price considerably after taking the company private.”
But in a credit-crunched market, Goldman Sachs and TPG weren’t in a position to demand a premium, said Berge Ayvazian, chief strategy officer for research firm Yankee Group. “It’s not surprising that they were able to work out a deal with what you might describe as a relatively modest valuation,” he said.
Verizon’s Timing, Hurdles
The timing of the transaction also isn’t surprising. Several analysts agree that Verizon is trying to beat the clock — that is, push the deal through before the Bush administration leaves office. The FCC, led by Chairman Kevin Martin, practically has rubber-stamped every major telco takeover since 2005. Verizon stands to get “more favorable regulatory treatment under the current FCC than a theoretical Democratic FCC under a theoretical President Obama, so now's the time to do this deal,” said Dawson.
Jessica Zufolo, a telecom analyst for Medley Global Advisors LLC, said the industry is expecting a less-friendly regulatory environment as of 2009, depending on who wins the presidential election. “Clearly, it is too soon to predict what will happen in November or even what the FCC may or may not look like next year,” she wrote in a June 5 memo to clients. “Either way, Verizon is not taking any chances and appears willing to assume the risks involved at this late stage in the year.”
