(THVideo: Click here for an Arkansas Business video report on "Today’s THV at Noon" on Verizon’s move to buy Alltel.)
A day after reports leaked that the two companies were in talks, Verizon Wireless announced Thursday that it will buy Alltel Corp. of Little Rock in a deal worth $28 billion.
In a news release, Verizon said it will acquire the equity of Alltel for about $5.9 billion. "Based on Alltel’s projected net debt at closing of $22.2 billion, the aggregate value of the transaction is $28.1 billion," the news release said. The companies want the merger to clear by the end of the year.
Alltel President and CEO Scott Ford talked about the deal at a 2 p.m. news conference. Click here for video of the news conference.
3,200 Workers in Arkansas
The deal throws into question what will happen to Alltel’s 3,200 employees in Arkansas, including the hundreds at its headquarters on Riverfront Drive. Alltel is the state’s 15th largest employer, according to Arkansas Business’ latest list of the state’s largest employers
Neither company has indicated plans for its workforce post-merger.
"The way these things happen, you don’t get into the future planning until you announce a deal, and then you really don’t get into communicating what’s going to happen in the future until after you close it," Verizon spokesman Jim Gerace told ArkansasBusiness.com.
In an e-mail to employees on Thursday announcing the sale, Alltel told employees "there will be no immediate impact on your job." The e-mail said the sale was "the best way – long-term – to provide not only for our customers but for the majority of our employees as well."
(Click to see Alltel’s e-mail to employees about the merger.)
With its substantial payroll, real estate holdings and community involvement, Alltel is a key corporate citizen in Little Rock, as well as the state. In a statement released by Gov. Mike Beebe’s office this afternoon, Beebe said the state welcomes Verizon’s expanded presence here.
"While Verizon Wireless has already been providing service here for several years, it will now have a more complete picture of Arkansas hospitality and the commitment of our workforce," Beebe said. "In acquiring Alltel, Verizon is obtaining a company with deep Arkansas roots and qualified, dedicated employees. I hope those attributes will resonate strongly as decisions are made about how best to incorporate Alltel into the Verizon family."
(Click to read more from economic development officials on what the sale could mean to the local economy.)
If approved by regulators, the deal would also remake the landscape of U.S. wireless competition, propelling Verizon Wireless to the No. 1 spot among cell phone services in the country, with about 80 million subscribers after folding in Alltel’s 13 million customers.
AT&T Inc. has about 71 million subscribers. Sprint-Nextel has about 53 million customers.
And the deal would mean a substantial payout for Alltel executives. Ford and other members of Alltel’s management team have contracts that pay three years of salary and bonuses in the event that wireless firm sells.
(Click for more what Alltel executives might stand to make if the sale goes through.)
According to the statement from Verizon, Alltel CEO Scott Ford will remain with Alltel "until the merger is completed."
"Both Alltel and Verizon Wireless have long track records of delivering a high-quality customer experience in the marketplace," Ford said. "The combination of our two companies will continue and improve upon that heritage as, together, we can more quickly deliver an expanded range of innovative products and services to our customers."
Verizon said it expects to realize synergies with a net present value, after integration costs, of more than $9 billion, driven by reduced capital and operating expense savings. Synergies are expected to generate incremental cost savings of $1 billion in the second year after closing, the company said.
Alltel has more than 13 million customers in 34 states, including 57 rural markets that Verizon Wireless says it does not serve.
Leaking Wednesday
Word about talks between the two firms began to leak on Wednesday. Financial news network CNBC was the first to report the talks. At the time, neither Verizon nor Alltel would comment on the story. Alltel spokesman Andrew Moreau told ArkansasBusiness.com that the company does not comment on rumors.
Earlier Thursday morning, Vodofone Group, part of a joint venture that owns Verizon Wireless, confirmed that Verizon was indeed in talks to buy Alltel. But it said there was "no assurance that a transaction will be forthcoming."
Verizon’s intention to buy Alltel comes six months after two private investment firms, TPG Capital and Goldman Sachs Capital Partners, finalized in November its purchase of Alltel a $27.5 billion deal, by far the biggest deal in Arkansas in 2007.
Alltel stockholders received $71.50 per share in the deal – a 22.6 percent premium over the stock price when the rumors of a sale started the in December 2006.
Alltel’s management has remained mostly in place since the deal. Ford has remained CEO of the wireless firm, and the company’s headquarters has remained in Little Rock.
In its story, CNBC said its sources told the network that TPG and Goldman are "willing to sell only six months after they closed the deal because they’ll get a slight premium to their equity investment, and there is a broad desire within private equity these days to generate a return when one is available.
"While the premium for the equity may be slight, given the enormous leverage in the deal, the returns would seem to be good ones for TPG and Goldman."
Verizon Wireless, a joint venture of Vodafone Group and Verizon Communications Inc., is the nation’s second-largest wireless firm, behind AT&T Inc. Verizon and Alltel use the same technology, CDMA, for their respective wireless networks.
Alltel recently reported a first-quarter loss due primarily to costs related to its merger with the two private equity firms in November. Alltel posted a first-quarter net loss of $124.9 million, compared with a profit of $230.1 million a year ago.