History of Verizon
Verizon Communications, Inc. was formed on June 30, 2000 with the merger of Bell Atlantic Corporation and GTE Corporation, in New York City and incorporated in Delaware. On July 3, 2000 Verizon began trading on the New York Stock Exchange (NYSE) under the VZ symbol. On March 10, 2010 they began trading on the National Association of Securities Dealers Automated Quotations (NASDAQ). The mergers that formed Verizon had roots going back to the beginning of the telephone business in the late nineteenth century.
With the regulation by the government and the signing of the Telecommunications Act on February 8, 1996, Verizon saw promise of a new competitive marketplace. In 2004 Verizon was added to the Dow Jones Industrial Average. And in 2006, with the addition of MCI, Inc,, Verizon became a leading provider of advanced communications and information technology to large businesses and the government customers worldwide. The merger of Bell Atlantic and GTE was valued at more than $52 billion. The purpose of the merger was to build a dynamic company that is capable of competing in the industry’s top-tier level. It took two years for the merger to close. In the meantime, Bell Atlantic and Vodafone Air Touch, now Vodafone Group, announced their agreement to create a new wireless business. The new “Verizon” brand was launched on April 3, 2000, after a six month wait for regulatory approval, and began operating as Verizon Wireless on April 4th. GTE’s wireless operations joined Verizon Wireless thereby creating the nation’s largest wireless company. “Verizon then became the majority owner (55 percent) of Verizon Wireless, with management control of the joint venture” (Varettoni, 2013, p. 3). Upon entering into an agreement to acquire Alltel, Verizon had to meet some conditions of the acquisition. Verizon had to divest overlapping wireless properties in 105 operating markets in twenty-four states. In May of 2009 Verizon entered into an agreement with AT&T Mobility to acquire seventy-nine of these properties for $2.4 billion. Verizon also entered into an agreement with Atlantic Tele-Network in June 2009, to acquire the remaining twenty-six properties (History of Verizon, 2013). Verizon Wireless launched its 4G LTE (fourth-generation Long Term Evolution) Mobile Broadband network in December 2010. This is the fastest and most advanced 4G network in the United States. This 4G LTE launch was in 38 major metropolitan areas which covered one-third of all Americans and also in more than sixty commercial airports. By January 2011, Verizon Wireless proclaimed that it would expand its 4G LTE network to an additional one hundred and forty markets by the end of 2011. As of the end of 2012, Verizon’s 4G LTE service was available to close to eighty-nine percent of the United States population in 476 markets (History of Verizon, 2013).

History of Alltel Alltel was originally Allied Telephone Company in 1943. They were privately owned and after their 1983 merger with Mid-Continent Telephone Company, became the fifth largest local telephone company located within the United States, under the name Alltel Corporation. Around this time, AT&T which dominated the American phone industry for much of its history, under a court order, was broken into eight smaller companies. This opened up numerous opportunities in the telephone industry which meant more competition in areas where there was limited competition. With this in mind, Alltel realized they must diversify their operations in the telecommunications field. As the company continued to strategically position itself in the increasingly competitive telecommunications industry, the Telecommunications Act of 1996 caused an increase in competition. As a result, Alltel branched out into providing long-distance services as well. Alltel began to rapidly grow while making a series of key acquisitions. They purchases 360 Communications Company in 1998 for $4.2 billion, which gave them access to wireless markets in areas where they did not have access before. With this combination of assets, Alltel tripled its cellular customer base and became the seventh largest wireless provider with revenues nearing $5 billion.
Alltel went through numerous mergers thereafter. In 1993 Alltel acquired GTE’s Georgia service area. In 1999 Alltel merged with Standard Group, Inc. and Aliant Communications. VALOR Telecom was formed with the acquisition of telephone assets from GTE Southwest Corporation in 2000. Verizon sold approximately 600,000 local customer lines in Kentucky to Alltel in 2002. Alltel and VALOR merged their landline business in 2005 and by 2006 they formed Windstream Corporation. In November 2008 Verizon Wireless received final approval from the FCC for the acquisition of Alltel and by January 2009 the merger was completed, thereby making Verizon Wireless the leading wireless provider in the United States. Prior to Verizon’s acquisition, Alltel operated its network in thirty-four states, with a wireless coverage that was the largest in the United States by area. Alltel’s focus was on small to medium sized cities. With roaming agreements with Verizon and Sprint, Alltel provided wireless services to residential and business customers in all fifty states. This allowed Alltel to give their customers access to nationwide service while providing coverage in rural areas.
Economic Setting The telecommunications industry is one of the most profitable and rapidly growing industries since 2005. The four major companies are AT&T, Verizon, Sprint Nextel, and T-Mobile USA. Not only is the telecommunications industry dealing with cell phones, but also land lines as well as internet and broadband services.
Because Alltel had some publicly held debt, it filed quarterly earnings reports with regulators. Although Alltel was highly competitive in the wireless market, there was doubt that they can continue to grow, given their buyout related debt. (LaFerney & O’Brien, 2009). In its first quarter, Alltel reported an increase in interest expense from $46.7 million in the prior year to $496.5 million. Needless to say, this set them back significantly and a merger was their best option.
As a result of the Alltel acquisition, Verizon’s overall operating costs and expenses increased. However Verizon expects to realize further synergies in 2010 and complementary technology standards will simplify the continuing integration of Alltel’s network operations which will result in reduced network operating costs. In addition, advertising costs are expected to be reduced with the retention of the Alltel customers to the Verizon Wireless brand and labor costs are also expected to decrease in the wireline segment.
Business Economics Reasons for Transaction Verizon argued that the merger will give them a better range which will result in improved customer service. They also stated that the merger will enable them to better serve the growing demands of both Alltel and Verizon Wireless customers. Both Alltel and Verizon believed the merger would enable Verizon to expand into rural regions with the help of Alltel. In addition, Verizon’s goal is to reinvent itself as a wireless company rather than a wireline company, and this merger will help them reach that goal. Furthermore, technological compatibilities between Alltel and Verizon will make the merger seamless. They share the same cell phone technology, called Code Division Multiple Access (CDMA), and they both operate on the same Evolution Data Optimized (EV-DO) 3G network. Had these compatibilities not existed, the merger would have been logistically more difficult. According to a June 5, 2008 Verizon Wireless presentation by Ivan Seidenberg, Chairman and CEO, Doreen Toben, EVP and Chief Financial Officer, Lowell McAdam, President and CEO – Verizon Wireless, and John Townsend, VP and Chief Financial Officer – Verizon Wireless, the strategic benefits of the merger with Alltel include: 1) enhancement of Verizon Wireless’ leading position in the United States, 2) Improves Verizon’s growth profile, 3) provides substantial synergy opportunities, 4) complementary technology standards, and 5) expanded benefits and seamless transition for customers.
Terms of the Transaction The terms of the acquisition deal states that Verizon will acquire the equity of Alltel for $5.9 billion cash and assume Alltel’s debt of $22.2 billion. Because this current deal is being financed entirely by debt, Vodafone did not object as they had previously when talks of an Alltel acquisition were discussed. Vodafone initially rejected the deal because the merger would have diluted its position in the combined companies (Sorkin and Holson, New York Times, June 6, 2008).
As a condition of the approval by the Department of Justice and the Federal Communications Commission, Verizon Wireless is required to divest overlapping properties in 105 markets across 24 states (Nicol, 2009). “Verizon Wireless will divest its own pre-merger operations in four markets, as well as the Rural Cellular Corporation (RCC) operations in southern Minnesota and western Kansas, operating under the Unicel brand, which Verizon Wireless acquired last August” (Nicol, 2009, p.2).
According to the SEC filing on June 5, 2008, Verizon agreed to acquire one hundred percent of the equity of Alltel with the following contingencies: If Verizon chooses to terminate the merger agreement, they will have to pay Alltel $500,000,000; In the debt purchase agreement, Verizon agreed to pay Alltel an aggregate purchase price of approximately $4.6 billion, plus accrued and unpaid interest for the loans.
Verizon entered into a credit agreement that bears interest at a rate equal to the base rate plus zero percent or LIBOR plus 0.75 percent. The interest rate on the loans increases by 0.25 percent if the aggregate principal amount of the loans outstanding on the six month date following the effective date as designated in the credit agreement, exceeds $1.9 billion. In addition, Verizon will pay a commitment fee on the unused portion of the delayed draw facility at a rate issued by Standard & Poor’s Ratings Services, which at the time of acquisition was 0.08 percent. Finally, Verizon is required to maintain a leverage ratio not to exceed 3.25:1.00.
Initial Reaction to Deal In a New York Times update on June 6, 2009, it was reported that On Thursday, June 4, 2009 Verizon Communications agreed to buy Alltel for approximately $28.1 billion, including Alltel’s debt. This news caused the shares of Verizon Communications to increase by 5.4% in the afternoon trading. CNBC also reported talks of the acquisition which caused the price of Alltel’s publicly traded debt to rise sharply (Sorkin and Holson, New York Times, 2008). Alltel’s “loans traded around 98 cents on the dollar, while bonds paying a 7% coupon that mature in 2012 shot up 12 cents, trading at about par, according to Standard & Poor’s Leveraged Commentary and Data” (Sorkin and Holson, New York Times, June 6, 2008, p.2). On June 5, 2008, Forbes Magazine reported the news of the Alltel acquisition by Verizon. There was speculation that the timing of Verizon’s announcement was due to them resigning to the fact that it may never catch up to AT&T. However with this acquisition, Verizon will surpass AT&T by accumulating 80.2 million subscribers, as compared to AT&T’s 71.4 million customer base. In an article in Business Week, dated June 6, 2008, it stated that analysts feel the acquisition of Alltel by Verizon makes perfect sense and is getting a good asset at a fair price. Verizon Wireless executives made a promise of delivering at least $9 billion in cost savings over the first three years after the Alltel acquisition closes. With this optimism, the stock market reflected Verizon’s promise with a 5% increase in share price in both Verizon and Vodafone, following the announcement.
Although there is significant promise of a successful merger, there are still some concerns. The combination of two companies of this size is very challenging, as experienced with the merger of Sprint and Nextel. In addition, Verizon will be increasing their debt with the acquisition of Alltel’s debt, totaling $38 billion. Senior analyst at Technology Business Research believes this could affect Verizon’s aggressive investments in multibillion-dollar projects.
One of the biggest potential risks lies with government regulators. Because Verizon and AT&T dominated a federal auction of extremely valuable wireless spectrum, consumers are concerned that declining competition will result in higher prices and worse service. In a conference call after the Alltel acquisition deal was announced, Ivan Seidenberg, Verizon Communications chairman and CEO stated they have had some experience with the Justice Department and understand what their tests are. He expressed that integration risks were limited because the two companies share the same wireless technology and the two companies only overlap by 15 percent in network coverage area.
Verizon’s Chief Financial Officer, Doreen Toben, was interviewed by Business Week where she stated that Verizon Wireless has a very low leverage, thereby having the ability to take on Alltel’s debt. Toben believes the $9 billion cost savings promise is a conservative number. She claims a fifth of the savings will come from the reduction in roaming fees that Verizon Wireless currently pays when their customers use Alltel’s network. She also believes another fifth will be a result of reduced network expenditures, and another fifth from advertising cuts. Toben also believes the remainder of the $9 billion cut will be generated by layoffs, closings of stores, and the consolidation of the billing systems, customer care tools, and data centers.
Subsequent Performance & Appraisal Verizon’s overall operating costs and expenses increased as a result of the acquisition of Alltel; however Verizon forecasts the realization of further synergies in 2010 as they continue the integration of Alltel’s operations. Furthermore, earnings are expected to be negatively affected by non-cash pension and retiree benefit costs in 2010. Costs of services and sales during 2009 included $195 million in merger costs and $38 million related to the preparation and separation of the wireline facilities and operations in the markets which are to be divested in the Frontier transaction. Despite these negative effects, minor in comparison to the overall effect, Verizon has countless positive results from the acquisition of Alltel.
After Verizon’s merger with Alltel, Verizon’s customer database grew unimaginably. Financially, Verizon showed signs of strength with a debt-to-equity ratio of 124.56720. The year prior to the merger, Verizon had a stock return of 2.60630, which was lower than AT&T’s stock return by 4.7829. The net profit margin for Verizon was 7.41794, whereas AT&T’s net profit margin was 8.65798. Verizon is clearly in close competition with AT&T’s financial position. As a result of the Alltel merger, Verizon surpassed AT&T as the number one carrier with a larger customer database which is 80 billion customers. Verizon has also continued to improve wireless and broadband services for all brands of phones, and has created long term evolution by bringing fast-speed internet connection to rural areas. The Verizon and Alltel post-merger results have proven to be positive. According to Verizon’s 2009 financials, which represent pro forma numbers adjusted to reflect the Alltel acquisition, they earned $62.1 billion in revenues. This was an increase from 2008 by 6.1 percent. Another increase was data revenues which grew by 31 percent in 2009. Consolidated revenue growth was 10.7 percent and domestic wireless customers increased 26.6 percent, bringing the number up to 91.2 million customers as of December 31, 2009. Roaming costs were reduced due to the acquisition of Alltel. The overall impact of Verizon’s acquisition of Alltel has been a benefit not only to Verizon, but to Alltel, their customers, and all stakeholders. Verizon continues to lead the wireless industry today with over 98 million customers. In the first quarter of 2013, they reported revenue of $29.4 billion, which were up from 2012, and earnings per share of $0.68 which was also up from 2012. Verizon continues to expand their services with the launch of Redbox Instant in March. This was in a beta trial period for most of the first quarter. In an attempt to push out its network expansion, Verizon has made a bid for Clearwire spectrum leases of $1.5 billion. Although this is unlikely to have impacted Verizon’s earnings in the first quarter of 2013, there is potential of future material impact on the business, according to the Wall Street Journal on April 15, 2013. Verizon’s FiOS continues to offset DSL subscriber losses in their wireline business. They are looking into bringing as many as 300,000 customers over to its fiber network away from the copper-based networks by the end of 2013. Currently, FiOS reaches 17.8 million customers, reaching 38.2 percent of potential FiOS subscribers within Verizon’s current network. In Verizon’s wireless business, they reported a total of 7.2 million activations for smartphones during the first quarter of 2013, with 28 percent new customers. Verizon has proven to be a top competitor in the wireless business as compared to the other top providers, such as AT&T, T-Mobile, and Sprint. Verizon continues to grow and expand to improve their services while maintaining excellent customer service, a feat very difficult to accomplish. With today’s market and growing trends, Verizon maintains its edge and continued evolution. The acquisition of Alltel by Verizon created a stronger and more reliable network. Despite Alltel’s added debt to Verizon, Verizon was successful in keeping their promise of cutting costs of $9 billion and increasing their revenues and position in the wireless industry. Overall the acquisition of Alltel was fairly seamless and a success any way you look at it, from the increased financial position of Verizon, to the satisfaction of its customers, both current and future.
References

Ante, Spencer E. Alltel: A Boon for Verizon Wireless. June 6, 2008. http://www.businessweek.com/stories/2008-06-06/alltel-a-boon-for-verizon-wirelessbusinessweek-business-news-stock-market-and-financial-advice.
Form 8-K. Retrieved from http://www.sec.gov/Archives/edgar/data/732712/000119312508131890/d8k.htm.
Nicol, Robin. 2009. Verizon Wireless Completes Purchase of Alltel; Creates Nation’s Largest Wireless Carrier Retrieved from http://news.verizonwireless.com/news/2009/01/pr2009-01-09.html
O’Brien, Casey and LaFerney, Julianna. 2009. Telecom Mergers & Acquisitions: Economical & Technological Effects Verizon & Alltel as a Case Study.
Sorkin, Andrew Ross and Holson, Laura M. 2008. Verizon Agrees to Buy Alltel for $28.1 Billion. Retrieved from http://www.nytimes.com/2008/06/06/technology/06phone.html?_r=0.
The History of Alltel. (n.d.). Retrieved from http://www.webhostingreport.com/learn/alltel.html.
Varettoni, Bob, Verizon Media Relations, archived press releases. Last updated 2013. History of Verizon Communications Inc.
Verizon Communications 2009 Annual Report. Retrieved from http://www22.verizon.com/investor/app_resources/interactiveannual/2009/downloads/09_vz_ar.pdf
Verizon Wireless to Acquire Alltel For $28.1 Billion. Retrieved from http://www.forbes.com/2008/06/05/verizon-alltel-acquisition-tech-cx_pco_0605paidcontent.html.