FCC Gives Final Approval to Alltel-Verizon Merger

by Jamie Walden  on Tuesday, Nov. 4, 2008 3:11 pm  

The Federal Communications Commission gave the final nod on Tuesday to Verizon Wireless' $28.1 billion acquisition of Alltel Corp., with a few conditions.

The Federal Communications Commission gave the final nod on Tuesday to Verizon Wireless' $28.1 billion acquisition of Alltel Corp., with a few conditions.

Verizon will be required to divest assets in 105 markets, including about 2.3 million subscribers from Alltel's customer base.

The roaming condition of the merger requires Verizon to offer four-year roaming contracts, starting at the closing date of the merger, or to fulfill the current contract, whichever comes latest.

The commission said Verizon had agreed to the conditions.

The five-member commission, dominated by a scant Republican majority, voted in favor of the merger.

Ivan Seidenberg, CEO of Verizon Communications Inc. (NYSE: %%VZ%%), said in a third-quarter earnings call with analysts on Oct. 27 that the merger condition is "within the range of expected divestitures." (Verizon Communications owns the controlling stake - 55 percent - of Verizon Wireless, which is a joint venture with Vodafone Group PLC.)

At the end of Verizon's third quarter, the company reported a total subscriber base of 70.8 million. AT&T (NYSE: %%ATT%%) released its third-quarter results Oct. 22, which reflected a total of 74.9 million subscribers. Alltel, which reported its third-quarter earnings on Tuesday, revealed a total subscriber base of 14 million.

The merger will put Verizon's total subscriber base at about 82.5 million, making it the largest U.S. carrier.

In the merger agreement, Verizon had an escape plan if required divestitures exceeded 2.8 million subscribers.

The anti-trust division at the Department of Justice all but approved the deal last week when it announced Verizon would have to divest 100 markets, five short of the amount that Verizon already anticipated being casualties of the deal.

The divested markets will be placed into a trust and operated separately until Verizon finds a buyer.

When Verizon initially announced the deal on June 5, it expected the addition of Alltel would add about 10 cents a share to the company's bottom line. However, the battered economy has caused the company to revise its first-year estimates. The cost of financing the deal now leads the company to believe that earnings from the new assets will be substantially lower in the first year.

"We do have, admittedly, an issue in which the early returns will be lower than we thought, but in no way will the long-term benefit of this deal be negated by some of these short-term issues," Seidenberg said.

 

 

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