Most companies in the telco sector are looking to consolidate and combine, but not Alltel. The company has announced that they will be spinning off their wireline business to become purely a wireless company.
Alltel’s wireline business, which is one of the largest to rural areas in the country, will be spun off and combined with Valor Communications, which serves Texas, Oklahoma and New Mexico. The new company will also assume Alltel debt. The value of the deal is $4.9 billion, plus $4.2 billion in debt. Alltel shareholders will own 85% of the new, as-yet unnamed company. The new entity will have 3.4 million access lines in 16 states and $5.4 billion in net debt.
Alltel will now be a wireless company with 11 million customers in 34 states. They will be looking toward expansion, but are openly cautious about overpaying for assets. The company is expected to pursue a $1 billion debt reduction program and repurchase $3 billion worth of stock in the next two years.
The absorption of Valor by the spin-off was unexpected, but is expected to make the deal more accepted by regulators. Though the move was done primarily to allow the wireless business to grow, it will also allow the wireline business more opportunities to grow without being held back by being a small piece of a much bigger wireless company.