Telecom carrier Alltel (Quote) has made a move to become a pure-play wireless phone provider, shedding its wireline
operations to Valor Communications Group (Quote) for approximately $9.1 billion.
The deal, subject to approvals from the Federal Communications Commission (FCC), the Internal Revenue Service, affected state
Public Utilities Commissions (PUC) and shareholders, was struck in a concession to the changing technologies in the carrier
business.
The split and merger is a tax-free deal for shareholders on both sides; current Alltel shareholders will continue to hold
their shares and receive 1.05 shares of Valor for every Alltel share they own. Officials expect the deal to close in mid-
2006.
Historically, wireless and wireline services were very similar and one carrier could make decisions to accommodate the growth
of both, said Scott Ford, Alltel president and CEO, who will retain his role in the wireless business. Today, with the
capital investments needed to build in each, it makes more sense to do it as separate companies.
"Each have to make very different types of investments over the next two to five years," he said in a news conference. "So
rather than stay together as one entity where we were optimizing for one set of consumers and maybe sub-optimizing for
another, we're splitting them apart so that both company's customers get the full benefit of the investments we make for them
as their communications provider."
Jeff Gardner, Alltel executive vice president and CFO, will become president and CEO of the merged Alltel-Valor wireline
business. He said the company will decide in the next six months whether to keep the Valor name or re-brand the company under
a new moniker.
The news has prompted speculation in the community that Alltel is shedding its wireline business to make a more attractive
target to major wireless providers like Verizon Wireless, Sprint Nextel (Quote) or Cingular.
The wireless industry has gone through considerable consolidation this year. In August, the Sprint and Nextel merger was finalized, while regulators gave Cingular the thumbs-up to purchase AT&T Wireless for $41 billion in
October.
Analysts at financial services firm Stifel Nicolaus doesn't expect Alltel to run into any difficulties getting the split and
merger with Valor past federal and state regulators.
Regarding speculation of an Alltel acquisition by a dominant wireless provider such as Sprint Nextel and Verizon Wireless,
analysts predict it would raise "significant" antitrust issues with federal regulators but there's headroom in the industry
as long as there are four wireless players to keep prices competitive.
Ford said the company is not currently in talks with any wireless providers but, as the manager of a publicly traded company
beholden to its shareholders, doesn't rule it out entirely in the future. He dismissed entirely speculation brought up in
media reports and by analysts.
"I think every month since I got here 10 years ago I've read a research report or article that said the company was on the
threshold of being sold -- just a moment in time stood between us and someone gobbling us up," he said.
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