Verizon Wireless acquired rival Alltel for $28.1bn, only $5.9 of which they had to come up with in cash. The purchase includes a deal to take over $5bn of bridge loans (associated with Alltel's private buyout last year) at a discounted price. This lowers the cost of retiring Alltel's debt, which can be refinanced at today's lower rates, while boosting VZ's subscriber base by 13 million to more than 83 million customers, surpassing AT & T.
So when Americans emerge in a future where cell phones will be open, customizable and feature-plentiful on a seemingly level playing field, how does a carrier win? It's simple, have a bigger stick than the other guy! And in the world of mobile phones, that means more subscribers on better, faster networks. Verizon's got the network part down, but was playing second fiddle to AT&T when it came to US subscribers. With this deal, not any more. Combining Alltel's base with Verizon's will make VZ the biggest carrier in the US, couple that with it's recent win in the 700Mhz Spectrum auction and Verizon is looking to secure the face of the Wireless Nation for the next 10 years.
Alltel was taken private just last May at a price tag of roughly $27.5Billion on a combination of debt, equity and a tremendous amount of leverage. It seems the private equity partners, TPG and Goldman Sachs Capital Partners, were looking to make a quick buck here and get out while they could with even the slightest of profit, even though at current levels Verizon would be paying a reported 8 times earnings, while last year's private deal fetched 9.2 times.
It now has a whole new database of addresses to send letters to recommending an upgrade of existing Internet and Television connections to Verizon's high speed FiOS, the fiber optic solution VZ has spent tons of time and even more money rolling out across the country.