Merger-mania trickled down the food chain last week as super-regional operator Alltel Corp. said it had reached an agreement to buy rural operator Western Wireless Corp. for approximately $6 billion in stock, cash and debt assumption. Alltel noted that when completed later this year, the acquisition would result in the largest physical wireless network of more than 1-million square miles serving 10 million customers in 33 states.
The deal, which was hinted at earlier this month, follows Cingular Wireless L.L.C.’s $41 billion acquisition of AT&T Wireless Services Inc. approved last October, and Sprint Corp.’s recent agreement to acquire Nextel Communications Inc. for about $35 billion.
Alltel’s deal, which will solidify the company’s position as the nation’s sixth-largest carrier and eventually the fifth-largest carrier pending Sprint’s deal with Nextel, calls for each share of Western Wireless stock to be exchanged for 0.535 shares of Alltel common stock and $9.25 in cash. Western Wireless shareholders also will have the ability to make all-stock or all-cash elections. Alltel added that in total it plans to issue 60 million shares of common stock and pay $1 billion in cash as part of the deal as well as assume about $1.5 billion in net debt.
“This transaction strengthens Alltel’s position as the nation’s top regional communications company and makes sense financially and strategically,” said Alltel President and Chief Executive Officer Scott Ford. “The domestic properties of Western Wireless are contiguous to Alltel’s existing operations and create additional wireless scale and scope in attractive and complementary markets.”
Alltel also will acquire Western Wireless’ international holdings, which encompass 1.6 million customers in six countries.
Ford noted in a conference call with investors that the company would be interested in additional acquisition possibilities as well as possibly selling off its substantial wireline properties. Prior to the Western Wireless announcement, Alltel’s wireless assets accounted for nearly half of its business. Following the acquisition, Alltel said wireless services should account for 67 percent of company revenues.
Current Western Wireless CEO and industry veteran John Stanton will remain as a member of Alltel’s board of directors and said he will become a strong proponent of Alltel’s wireless future as well as Western Wireless’ international operations. Ford added that while Stanton seemed indifferent to staying on with Alltel following the acquisition, he said he felt strongly about Stanton remaining involved in Alltel’s operations.
“This is terrific for both companies,” Stanton said last week at an investor conference in Phoenix. “It will combine complimentary assets both geographically and technically.”
Stanton explained that Alltel traditionally has been more successful in its retail operations than Western Wireless, while Western Wireless has a strong track record of operating divergent network technologies.
In addition to his position on Alltel’s board, published reports indicated that Stanton and his wife, Theresa Gillespie, who collectively own about 43 percent of Western Wireless’ voting shares, could walk away from the acquisition with more than $450 million in cash and stock. Stanton also successfully oversaw VoiceStream Wireless Corp.’s $30 billion sale to German telecommunications giant Deutsche Telekom AG in 2002.
Ford would not comment directly on potential layoffs following the acquisition, but said that he expected to keep Western Wireless’ Seattle-based call center as well as other operations in the area, which Ford said are a stronger selling point for keeping high-tech employees than Alltel’s Little Rock, Ark.-based operations. Ford also said he did not expect any layoffs from Western Wireless’ international operations, though he noted Alltel possibly could spin off those operations in the future.
Analysts noted the deal should be fairly seamless as both carriers use CDMA-based networks and rely nearly entirely on cellular spectrum to serve their customer bases. Both carriers also have deployed CDMA2000 1x and BREW-based capabilities across most of their networks, with Alltel saying it plans to follow up with EV-DO services. It is testing DO in Phoenix and plans to commercially launch DO services in an additional 10 markets.
Alltel did note that it expects to post between $50 million and $60 million in operating synergies next year increasing to between $80 million and $90 million in 2008.
The deal also bolsters Alltel’s roaming capabilities, which prior to the deal have been dominated by its master roaming agreement with Verizon Wireless, set to run through 2010. Western Wireless operates a GSM-based network, which the carrier installed to enable roaming with Cingular and T-Mobile USA Inc. on roughly half of its cell sites, and also provides TDMA, CDMA and analog services for both roaming and its own customer base.
Merrill Lynch recently noted that Cingular accounts for 60 percent of Western Wireless’ roaming traffic, and as part of a previous agreement between Western Wireless and AT&T Wireless Services Inc., should remain a preferred roaming partner for Cingular through March 2008.
Stanton noted that following completion of the deal, Verizon Wireless would have the right to step down its current roaming agreement with Western Wireless to the same rate it has with Alltel, though Ford downplayed the change, noting Western Wireless’ roaming rates with Verizon Wireless have been declining over the past several years.
“Stanton has already been stepping down roaming rates with VZ so there is not a cliff to fall off,” Ford said.
