Verizon Wireless has been looking for every way possible to still call itself No. 1 after AT&T (NYSE:T) merged with SBC in 2006. Verizon press claimed to "lead the industry with the most retail customers" and be "the largest U.S. wireless provider (based on revenue)." Now the company won't have to fiddle with words or add qualifications. Verizon will be the clear top dog in wireless after acquiring 13 million subscribers from top regional carrier Alltel.
The deal was formally announced only hours after rumors broke of a potential deal. Verizon Wireless -- a joint venture between Verizon Communications (NYSE:VZ) and Vodafone -- will pay $5.9 billion in cash to assume $22.2 billion in debt at Alltel, valuing the deal at $28.1 billion in all. Verizon opted not to go all-in and buy Alltel last year, when private equity funds from TPG Capital and Goldman Sachs (NYSE:GS) took the company private for $27.5 billion.
Investors' reaction to the deal was positive immediately after the announcement, with shares of Verizon Communications bumping up by more than 5% in the morning. While the deal will put Verizon Wireless deeper in debt, investors are likely most optimistic about the extra leverage that additional scale will bring.
Verizon and Alltel share a common network technology -- a standard called CDMA that was developed and championed by Qualcomm (NASDAQ:QCOM) in the 1990s. A common network platform should make integrating the companies much easier than the complications Sprint Nextel (NYSE:S) is having in patching together Sprint's CDMA network with Nextel's completely different iDEN platform. Verizon believes the merger will work well, saving the company $9 billion through consolidation and reduced spending by 2011.
Verizon Wireless' assumption of even more customers will expand its leverage to drive the industry as well, helping it dictate what an open network is, and keeping computing heavyweights like Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) in check by promoting open operating systems based on Linux Mobile.
The deal is not in the bag, and it'll certainly draw scrutiny from antitrust regulators. Still, I expect it will go through by the end of 2008, as the company projects. Then Verizon will once again have bragging rights -- at least until the next big buyout comes along.
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