Alltel Corp. said Friday a $4.9 billion deal to spin off its telephone division to shareholders will enable it to expand its core wireless business.
The new company will be combined with Valor Communications Group Inc. of Irving, Texas. The deal's total value will be $9.1 billion, including $4.2 billion in assumed Alltel debt, based on Valor's closing stock price from Thursday.
Alltel Chief Executive Scott Ford said the spinoff was the best move for shareholders and that the wireline division would no longer be subordinated to the dominant wireless business.
"Historically, the two networks were similar in their basic infrastructure," Ford said. But that is no longer the case, and the businesses need to make different types of investments over the next two to five years, he said.
Ford said the move is not designed to dress up Alltel for acquisition.
"There is certainly nothing going on in that vein right now," Ford said. But, as he always does when the question arises, Ford said the company would do what's best for shareholders if a suitor emerges.
Taher Bouzayen, a senior analyst with Yankee Group technology research firm in Boston, said Alltel made a solid move with the spinoff.
"The (Alltel) wireless business was built on top of the landline business," he said. "From brand recognition and customer access, it's really a great move."
Jeffery Gardner, who will serve as president and chief executive of the as yet unnamed new company, said the firm will keep service to rural areas as its focus. Gardner said there is less competition there than in urban areas and that rural markets will be fertile for selling broadband and video.
"Our focus is on selling more things to our customers," Gardner said.
Even though wireless is the hot property, Bouzayen said there is still money to be made in the wireline business, particularly considering the potential to introduce broadband and other products outside of cities.
Likewise, Bouzayen said Alltel's desire to focus solely on its wireless business will enable it to expand its offerings to customers without distraction. Sprint is planning a similar move with its acquisition of Nextel.
"The growth is on the wireless side, and they want to focus on that," Bouzayen said.
Alltel shareholders will own 85 percent of the merged company. Valor will issue about 400 million shares to Alltel shareholders, who will own 1 share of the wireless business and receive 1.05 shares of Valor for each Alltel share. Alltel shareholders will get a 50-cent annual dividend from Alltel and $1.05 from the new company, compared with $1.50 they now get from Alltel.
The deal will be a tax-free separation, and will leave Alltel with 11 million wireless customers in 34 states. Alltel used a so-called "reverse Morris trust" transaction, which is a technique companies can use to sell an asset tax-free.
Valor said the wireline company will have 3.4 million access lines in 16 states. It already has customers in Texas, Oklahoma and New Mexico.
The combined wireline companies will be headquartered in Little Rock until a new home office can be found in the area. The new company will save $40 million a year from the merger, Gardner said.