Economics, politics could force Verizon Wireless away from Alltel purchase

[TNDan21]

Economics, politics could force Verizon Wireless away from Alltel purchase
Analyst: Verizon may pay $500M break-up fee, then come back for better purchase price
October 10 2008 - 2:16 pm EDT | Jeffrey Silva | RCR Wireless News

Verizon Wireless offered to divest another 15 markets as part its $28.1 billion play for Alltel Communications L.L.C., but the proposed transaction is becoming trickier by the day because of fluid economic, regulatory and political factors.

In a filing with the Federal Communications Commission, the No. 2 mobile-phone carrier said the 15 additional markets it would sell are located in Alabama, Arizona, Georgia, Iowa, Minnesota, Nebraska, New Mexico, North Carolina, South Carolina and Utah.

Verizon Wireless, after discussions with the Department of Justice, said in July it was willing to sell assets in 85 markets in order to address any antitrust concerns regarding the purchase of Alltel.

The deal, announced in early June, would have Verizon Wireless paying $5.9 billion in cash for Alltel and assuming $22.2 billion in debt. If approved by the FCC and DoJ, Verizon Wireless — a CDMA operator like Alltel — would pass AT&T Mobility as the nation’s largest cellular operator.

But hurdles remain, and time pressures are acutely looming for Verizon Wireless’ planned buy of Alltel. The Little Rock, Ark.-based company is the fifth largest mobile-phone operator and is owned by private equity firms TPG Capital L.P. and Goldman Sachs Capital Partners.

“We believe Alltel has a sense of urgency to close the deal for a number of reasons, including the desire by Goldman Sachs and TPG to exit the investment, the desire to avoid refinancing $7-8 billion in debt due this year, and the recognition that Verizon is the only viable purchaser at this time,” said analysts at Stifel, Nicolaus & Co. Inc. “This would support the recent reports that the credit-default swaps have doubled over the past two weeks, reflecting concern that Verizon may abandon its purchase of Alltel.”

Credit markets continue to be largely frozen even in the face a newly enacted $700 billion Wall Street bailout bill and global efforts to shore up shaky financial markets.

“As with everything these days, we cannot rule out the possibility that the credit markets could still be so locked up and that even Verizon cannot obtain credit to refinance the debt,” Stifel analysts stated.

The FCC and DoJ appear to be trying to wrap up their reviews of the Verizon Wireless-Alltel tie-up before the end of the year — before presidential and congressional elections whose outcomes have potential implications if final government action on the transaction gets delayed. A Democratic administration could apply even stricter scrutiny to the Verizon Wireless-Alltel deal.

Kevin Martin, chairman of the GOP-led FCC, could face intense pressure from the agency’s two Democrats — Michael Copps and Jonathan Adelstein — to impose conditions involving automatic roaming for voice and data, handset exclusivity arrangements, open access and net neutrality, rural upgrades and divestitures.

The Rural Telecommunications Group on Thursday complained to the FCC that Verizon Wireless recently offered only vague explanations on key matters such as “the long-term status of Alltel’s GSM network; Verizon Wireless’ unwillingness to enter into and/or extend voice and roaming agreements; and the complete chilling effect the proposed merger would have on new wireless broadband deployment in rural America.”

Because of Alltel’s $7 billion - $8 billion in debt due this year — the handling of which may be made difficult by the current economic climate — there could be even more impetus for the FCC’s Republican majority to act on the Verizon Wireless-Alltel deal sooner rather than later. For precisely that reason, FCC Democrats could gain added leverage to insist on a variety of conditions.

But what if merger conditions don’t sit well with Verizon Wireless?

“If the agreement is terminated as a result of Verizon Wireless not agreeing to restrictions or conditions that would meet the standards set forth in the definition of burdensome condition of divesting 2.4 million subscribers but would not result in aggregate divestitures in excess of 2.8 million subscribers, then Verizon Wireless would make a payment to Alltel of $500 million,” stated Fitch Ratings late last month, before Verizon Wireless’ latest divestiture offer. “A burdensome condition could also be triggered with divestitures of less than 2.4 million aggregate subscribers in the event aggregate negative effects would have a material adverse impact on the business of the combined company.”

Stifel analysts said such an outcome might not be the end of the story.

“On a pure math basis, it could make sense for Verizon to abandon the deal, pay the $500 million break-up fee, and then come back to Alltel for a more favorable purchase price, in effect requiring Alltel to absorb some of the additional cost of financing the deal.”

Economics, politics could force Verizon Wireless away from Alltel purchase - Wireless - RCR Wireless News

[KyleAndMelissa22]

This is exactly what I want to hear.
This sounds to me like great news for Alltel & it's customers.

I really hope Verizon could stay away from buying Alltel,
and maintain a good relationship instead with roaming agreements.

[larry]

Not surprised at all. When I first heard this merger announcement I didn't think it would be easy due to a lot of factors. There's been too much consolidation already and prices are going to creep up if they keep allowing these mergers to happen without enough divestings.

[blsemp]

Still hoping for the Alltel 800 band in SC for AT&T.

[ctk74]

Originally Posted by KyleAndMelissa22

This is exactly what I want to hear.
This sounds to me like great news for Alltel & it's customers.

I really hope Verizon could stay away from buying Alltel,
and maintain a good relationship instead with roaming agreements.

Did you read the article? if the deal doesn't close, how is Alltel going to come up with 8 billion to refinance their debt? What do you think will then happen to the company? In this climate it is possible a BK filing could be their only option. Then Verizon will come in an pick the carcass clean on the cheap.

[RadioFoneGuy]

Verizon thinks their doing everybody a favor by adding more divestment markets. If you look at the 850 areas there are still a ton of areas where Verizon would own both.

If Verizon doesnt go thru with the deal TGP might break up Alltel into pieces and sell it off.

[jrip]

Originally Posted by RadioFoneGuy

If Verizon doesnt go thru with the deal TGP might break up Alltel into pieces and sell it off.

This was the idea when Alltel sold to the private investment firms to begin with. That is if they could not find a single buyer, then chop it up and sell it off to whomever.

[spleck]

I think when VZW says they're "willing" to divest 15 more markets, it just means that they found a buyer in those markets for the extra license. As much as they want to have all the spectrum, they probably don't want to pay for it in the current market. I bet they already have deals lined up for the other 85 markets they planned on divesting.

If the acquisition doesn't go through, then refinancing in this market may be an issue too--parting Alltel out has more of a chance of happening now.

[WirelessBeachBum]

Wirelessly posted (Opera Mini on Alltel HTC 6800: Opera/9.50 (J2ME/MIDP; Opera Mini/4.1.11355/786; U; en))

Does anyone have a list of the 15 additional markets?

[UFO]

Here's an image. It should expand when selected.
divesture.gif

[KyleAndMelissa22]

Originally Posted by UFO

Here's an image. It should expand when selected.
Attachment 2659

Man, South Carolina is really getting chopped up pretty good.

Now Anderson County is on the divest list,

but that county is not it's "own" market,
it is part of the "Greenville-Spartanburg-Anderson" market.

What about for those who live on the Anderson & Greenville County line,
which is Urban Greenville in lots of places along I-85.

You wouldn't be able to cross county lines without crossing a "new" license border,
and calls will drop at license borders between different carriers.

.....

My only hope for Alltel customers in South Carolina,
is to migrate over to the 800 "A" side (Verizon's current network).

[blsemp]

Originally Posted by UFO

Here's an image. It should expand when selected.
Attachment 2659

Looking better all the time. Now if they will turn the Greenville and Pickens SC area red.

[strunke]

Originally Posted by blsemp

Looking better all the time. Now if they will turn the Greenville and Pickens SC area red.

Well there is no guarantee att gets it. US Cellular would look really nice with a lot of the divested properties.

[WirelessBeachBum]

Wirelessly posted (Opera Mini on Alltel HTC 6800: Opera/9.50 (J2ME/MIDP; Opera Mini/4.1.11355/786; U; en))

I was thinking the same thing many of the divested markets could be a good fit for USCC. I used to work for them in VA, I would much rather turn my stores into USCC stores than VZW stores.... ironically USCC will now be in 5th place if the Alltel VZW merger completes.

[RadioFoneGuy]

Just the divested areas are bigger than alot of the bigger rural companies that got sold in the past.

A ton of the old Western and Midwest Wireless will be up for sale again. Think of the customer frustration there.

Honestly I hope Alltel lives as Strunke put it.

Alltel is my companies biggest competitor in my area and it creates good competition between the two and benefits the customers on both sides as both companies put new towers up in hillybilly heaven where i live.

If you look at Mountain Wireless there are a few dozen more areas that Verizon would have to sell off. I can think of about 3 RSA in Michigan where Alltel and Verizon are both built out heavily with towers and both in the 850 band.

Unfortunately Alltel would have to come up with some cash and risk the traditional investment firm break ups.

[blsemp]

Originally Posted by strunke

Well there is no guarantee att gets it. US Cellular would look really nice with a lot of the divested properties.

I understand that. I would hope AT&T sees a need for the 850 freq and would go after it. For building penetration it is needed.

[larry]

I wonder if Sprint would be interested in any of the markets to be divested? Probably not but I sure would like to see US Cellular at the front of the line because we need them to get bigger so there will be more competition around.

[agentHibby]

Wonder what VZW is selling in Nebraska RSA #5
Cellular providers in Nebraska RSA #5 are US Cellular and Alltel.
VZW does has a PCS license (D block) for part of the market due to the Qwest Wireless purchase.

[Joe912]

Originally Posted by RadioFoneGuy

If Verizon doesnt go thru with the deal TGP might break up Alltel into pieces and sell it off.

I sure hope that if the merger doesn't go through that Verizon will buy the Vidalia Georgia Market from Alltel. Vidalia is in two counties Montgomery & Toombs and two different Cellular Markets. Verizon has the Montgomery side and covers it pretty good. Alltel has both markets but has poor spotty reception especially in Montgomery County & south of Vidalia going into Uvalda.
I have Alltel at work & Verizon for my personal phone and for me Verizon has far better coverage, phone choices, & customer service.