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Verizon Wireless (VZ)
Verizon Aims for Top Wireless Spot
The wireless world is about to get a whole lot smaller. News has been confirmed by a major shareholder of Verizon Wireless that its sights have been set on an acquisition target and talks to seal the deal are in the advanced stages. This purchase would make Verizon the number one U.S. wireless service and could spur a merger frenzy in the communications industry. If the deal goes through, the buyout could mean a whole new era for wireless customers, so when will Verizon step up to confirm the reports?
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The leak came from Great Britain's Vodafone (VOD: Charts, News, Offers), who has a 45 percent stake in Verizon Wireless. The other 55 percent of the company is owned by Verizon Communications. Vodafone's confirmation identified that talks are in the advanced stages for Verizon's purchase of Alltel Corp., a rural wireless service provider that serves 13 million customers in 35 states. Alltel, the fifth-largest US wireless firm by subscribers, is no stranger to these acquisition talks, as it was purchased last November by an investment unit of Goldman Sachs (GS: Charts, News, Offers) and TPG Partners in a deal valued at $27.5 billion.
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What is known so far is that the Verizon agreement has been valued at about $27 billion, including $23 billion worth of debt, and both Vodafone and Verizon Communications will maintain their proportional ownership. The offer values Alltel at 8 times its earnings before interest, tax, depreciation and amortization, whereas the November deal valued Alltel at 9 times its earnings before EBITDA. At the time, the November deal was the biggest private equity investment in the U.S. wireless industry in history, but the heavy hits taken by the investment banks in the months since then have made it necessary to raise cash by selling assets.
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Most important about this deal, though, is the implication it has on Verizon's status in the wireless industry and how the wireless industry will change as a result. If the acquisition goes through, Verizon will leap past AT&T (T: Charts, News, Offers) to become the top wireless service in the US. Analysts say the deal will help Verizon create savings of around $1 billion annually from both a network and handset perspective and now may be the perfect time to refinance Alltel's debt at a lower interest rate. It may also trigger the start of a merger frenzy that could quickly consolidate the competition. Some analysts expect news of other tie-ups to be forthcoming for the other independent wireless operators. So far, investors have taken kindly to the news, sending Verizon Wireless' stock up over 5 percent in early trading.
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