Alltel to Spin Off Wireless Business

LITTLE ROCK, Ark. (AP) _ Alltel Corp., one of the nation's largest telecom service providers to rural areas, said Friday it would spin off its traditional phone division to shareholders and combine

Friday, December 9th 2005, 10:22 am

By: News On 6

LITTLE ROCK, Ark. (AP) _ Alltel Corp., one of the nation's largest telecom service providers to rural areas, said Friday it would spin off its traditional phone division to shareholders and combine it with Valor Communications Group Inc. in a deal valued at $4.9 billion plus debt.

Alltel's move would turn it into a pure wireless company.

The company previously said it intended to shed its wireline business but it wasn't highly anticipated that the division would set off on its own, absorbing Valor of Irving, Texas, in the process. The deal's total value would be $9.1 billion, after $4.2 billion in assumed Alltel debt is factored in. The figure is based on Valor's closing stock price from Thursday.

Alltel shareholders will own 85 percent of the merged company, which hasn't yet been named. Valor, which has customers in Texas, Oklahoma and New Mexico, will issue about 400 million shares of stock to Alltel shareholders, who will own 1 share of the wireless business and will receive 1.05 shares of Valor for each Alltel share.

Alltel chief executive Scott Ford said the company wanted a transaction that would be good for its customers and shareholders and would be ``appreciated by regulators.''

``I think we have hit exactly that point,'' Ford said in a conference call with investors.

Ford said Alltel plans to keep expanding its wireless business. But he cautioned that a lot of properties that appear to be in play are too expensive.

``Some of that we have to be thoughtful or disciplined about,'' Ford said. ``It is not beyond the pale that we would like to expand in less traditional ways ... product, spectrum, service.''

Ford said there was no ulterior motive in the spinoff and that there is no intention to put the wireless company up for sale.

The company said it expects $40 million a year in synergies from the combination, and the new entity will have $5.4 billion in total net debt. In a separate statement, Valor said the wireline company will have 3.4 million access lines in 16 states.

The deal will be a tax-free separation, and will leave Alltel with 11 million wireless customers in 34 states. Alltel used a what's known as a ``reverse Morris trust'' transaction, which is a technique companies can use to sell an asset tax-free. Alltel said it expects formal word from the Internal Revenue Service in a couple of months on its interpretation of the tax consequences.

The company said it expects the wireless business to launch a $1 billion debt reduction program, as well as repurchase $3 billion in stock for two years after the spin-off.

Alltel group president Kevin Beebe said the transaction will allow the wireline company to grow, too. Beebe said the division was restricted in its growth while a part of a mainly wireless business.

``There's a lot of smaller rural carriers,'' Beebe said. ``I think there will be opportunities.''

The company said it expects the wireline business to pay a $1 annual dividend, while the wireless business plans to pay a 50 cent annual dividend.

The deal is expected to close by late spring or early summer, pending Valor shareholder and regulatory approval.

Valor said it still expects full-year 2005 capital expenditures of about $59 million.

After the transaction, Alltel would have annual revenues of $7.5 billion with its 11 million wireless customers in 34 states.