Vodafone Confirms $28.1B Alltel Takeover

Vodafone Group plc (NYSE: VOD) has confirmed that Verizon Wireless , its joint venture with Verizon Communications Inc. (NYSE: VZ), will take over U.S. CDMA rival Alltel Corp. (NYSE: AT) for $28.1 billion in cash and debt.

Verizon will pay $5.9 billion for Alltel and take on $22.2 billion in debt. "We expect the acquisition of Alltel to significantly increase the value of our 45 percent interest in VZW through the realisation of substantial in-market synergies and to reinforce its leading position in the world's largest mobile market by revenues," said Vodafone's CEO Arun Sarin in a statement released by the company.

Vodafone is the 45 percent part-owner of Verizon Wireless, together with Verizon Communications Inc. (NYSE: VZ).

Speculation about a $27 billion Verizon Wireless takeover emerged yesterday. The new acquisition comes just months after Alltel agreed to a $24.7 billion private buyout by TPG Capital and GS Capital Partners . (See Alltel Accepts $27.5B Buyout Offer and Verizon Mum on Alltel Takeover Rumor.)

An Alltel buyout will once again make Verizon the largest wireless carrier in the U.S. At the end of the last quarter, AT&T Inc. (NYSE: T) led the pack with 71.4 million wireless users, whereas Verizon had 67.2 million in total. By adding Alltel's 13-plus million users onto its books, Verizon Wireless will be top dog again.

"The $28.1 billion purchase price represents a $600 million increase from the price Alltel’s private equity investors TPG Capital and GS Capital Partners agreed to pay to purchase Alltel just one year ago," says Technology Business Research Inc. (TBR) analyst Ken Hyers in a research note.

"However, from Verizon Wireless’ perspective, the increased price can easily be justified in roaming charges alone. Despite a long-standing cross-roaming agreement, Verizon Wireless pays significant fees to Alltel when Verizon Wireless customers roam onto Alltel’s networks. By acquiring Alltel, TBR believes that Verizon Wireless will immediately realize significant synergies through savings on roaming costs."

Alltel also uses the same CDMA network technology as Verizon, so integration of its network assets in 13 states in the U.S. should be relatively simple. TBR's Hyers, however, notes that Verizon's assumption of Alltel's debt could hamper Verizon's investment capabilities in its overall wireless network.(See Fixin' Alltel's 4G Hash.)

Regulatory approval for the deal is expected by the end of the year, but some market divestitures are expected as part of the approval process. "While it is almost certain the deal will be approved, the company will likely be forced to divest overlapping markets that could range from 20 to 30 percent of Alltel’s POPs," says UBS Research analyst John Hodulik in a note this morning.

— Dan Jones, Site Editor, Unstrung