Alltel-Western Wireless Merger Could Get Fast Regulatory Approval
A merger between Alltel and Western Wireless would move fast through regulatory approvals, industry analysts predicted. They said the rumored deal would hardly face regulatory hurdles due to companies’ complementary rather than overlapping footprints. The carriers probably would have to divest overlapping spectrum, particularly in Kan. and Neb., analysts said. “If there is any divestiture I expect it to be very trivial,” Legg Mason Analyst Rebecca Arbogast told us.
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Alltel reportedly is in advanced talks to buy Western Wireless for about $4 billion plus $2 billion in assumed debt. The deal could be announced as early as next week, the New York Times reported Thurs. The combined company would have about $10 billion in revenue and 9.8 million wireless subscribers. Alltel and Western Wireless representatives had no comment.
The deal appears to be “a fairly straight-forward merger to get through a regulatory approval” even though it’s going “back-to-back” with the Sprint-Nextel and Cingular-AT&T Wireless deals, Arbogast said: “The biggest danger is that [it] comes on the hills of previous mergers, but because there are almost no overlaps, there probably won’t be any significant problems.” She added: “We may be coming closer to a point after these 3 deals where the [FCC] and the Department of Justice might start having some concerns about how far consolidation can go, but I think these 3 will be fairly easy to go through.”
There could be “minor regulatory problems, because there is minimum overlap of footprints,” another industry analyst said. He said Neb. and Kan. were “the only 2 states where there could be regulatory issues because of [A block] spectrum overlapping.” The national carrier mergers shouldn’t have any impact on how the Alltel- Western Wireless deal would be viewed, the analyst said. “National carriers usually compete against these operators and use them as roaming partners, so the national mergers wouldn’t necessarily lead to shrinkage of competition in the rural wireless market,” he said.
The merger would make good sense strategically, analysts said. “Given the markets that each company operates in and the minimal overlap between them we believe the combination could make sense strategically,” Prudential Equity Group said. Legg Mason said although the merger would make “strategic sense” for Alltel long term, there could be “some weakness in the stock in the near term as the market absorbs this development.” It estimated lower synergies than in the recent Cingular-AT&T Wireless and Sprint-Nextel mergers due to the companies’ complementary footprints. Both carriers also use the same CDMA wireless standard. “We see this as a logical deal, based on several factors” including footprint, rural consolidation and industry evolution, said JP Morgan. The deal would give Alltel a significant presence in the West, where Western Wireless operates in 19 states.
The merger talks haven’t been finalized and still could collapse, according to the N.Y. Times. JP Morgan predicted other bidders could emerge. Cingular Wireless would be the most logical, it said, since it uses 100% of Western Wireless’s footprint for roaming.
Western Wireless has significant international assets in Austria, Ireland, Slovenia, Georgia, Bolivia, Haiti, Ghana and the Ivory Coast, while Alltel has historically been a domestic carrier. “It remains to be seen what the future of those assets will be if this deal is consummated,” Legg Mason said. It estimated the value of the international assets at about $1.7 billion. Prudential said if the deal goes through, the combined company may divest Western’s international assets.
The deal could launch a “new phase of consolidation,” particularly among smaller regional carriers, Legg Mason said. Assuming the Sprint-Nextel merger is completed, it said, regulators would be unlikely to approve any other potential mergers among the national wireless carriers. “The new company’s pro forma balance sheet would remain strong, allowing the company to continue to examine acquisition opportunities for smaller wireless carriers,” it said.
But UBS said the acquisition of Western Wireless didn’t necessarily mean more consolidation in the smaller wireless carrier industry. “We do not believe the [deal] increases the likelihood that other rural and regional operators,” such as Dobson, Triton and Rural Cellular, “now become acquisition targets,” it said: “In fact, we believe Western Wireless was seen as a logical buyer of select assets of some of these operators.” UBS said it didn’t see “a natural buyer” emerging soon for those carriers. “We do, however, believe that additional Sprint affiliate consolidation will occur this year,” it added.