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Acquisitions - Verizon Wireless

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Looking at the recent acquisitions of Verizon Wireless, find two acquisitions to answer the following questions about each acquisition.

1. What is the reason for acquisition that was used as the logic by your firm in justifying the acquisition? Explain your answer and support it with reasons.
2. Which of the sources of integration difficulties seem to be of concern in this acquisition? Explain your answer and support it with reasons.

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One approach to help you with an assignment like this one is to address each question, which you can draw on for your final copy, which needs to be in APA format. This is the approach this response takes. I attached an excellent APA resources.

RESPONSE:

1. What is the reason for acquisition that was used as the logic by your firm in justifying the acquisition? Explain your answer and support it with reasons.

A. Verizon Wireless Acquisition of Alltel

The upheaval in U.S. financial markets is squeezing wireless companies, particularly those eager to sell off major assets like Alltel (NYSE: AT) (http://www.informationweek.com/news/telecom/business/showArticle.jhtml?articleID=211100163). Verizon Communications announced it would buy Alltel for about $28.1 billion, including the assumption of debt, reports The New York Times. It will pay $5.9 billion for the equity of Alltel and assume $22.2 billion in debt. The deal was closed in January, 2009 (http://www.itbusinessedge.com/topics/reader.aspx?oss=42766).

Rationale: This deal would make Verizon the largest wireless operator in the US market. The combined entity would have about 78 million subscribers. Verizon had initially aimed to complete the deal before the end of last year. But it was delayed due to the regulatory review which took a bit longer. The company is paying $5.9 billion for Alltel's privately held equity.
Verizon's rationale was to improve the customer's experience through adding to the customer base. It was also about increasing its market share in the industry. In fact, if consummated, the Verizon takeover of Alltel would remake Verizon Wireless as the nation's largest cell phone service provider. AT&T is currently the largest (http://www.informationweek.com/news/telecom/business/showArticle.jhtml?articleID=211100163).

For example, in a press release, it reports that No. 2 mobile service provider Verizon Wireless has 67 million customers to Alltel's 13 million. The combination will put Verizon ahead of AT&T, which as 71.4 million customers, according to Agence France Presse (see http://afp.google.com/article/ALeqM5gUbVygZXVv8RmjUgB9XxHMoFDHxw). It also will expand Verizon's coverage areas in the Midwest and the South. For example, Vodafone owns 45 percent of Verizon Wireless and Verizon Communications own 55 percent. Stock prices for both companies were down Thursday morning. According to Forbes, Vodafone is worried about dwindling dividends -- in fact, it hasn't seen once since 2005. And the re-leveraging required to buy Alltel could make chances of a dividend for Vodafone even more remote. The deal, along with one in which France Telecom could acquire Swedish and Finnish fixed-line network operator TeliaSonera, has observers predicting a new wave of ever-larger telecom deals, according to a Dow Jones story on CNNMoney.com. Bloomberg, however, reports that TeliaSonera has ...

Solution Summary

By addressing the questions, this solution assists with information on recent acquisitions of Verizon Wireless.

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Verizon sought to acquire Alltel, by joining forces however; Verizon has agreed to pay $5.9 billion in addition to assuming an insurmountable debt of about $22.2 billion. The upward side to the acquisition is the wide array of consumers Verizon will acquire as a result, thus creating one of the world's largest and most successful wireless carriers in the country. The acquisition is thought of (by Verizon executives) as a means to generate substantial revenue, increased ROI (Return-On-Investment), expand globally, and acquire new consumers while retaining current consumers.

The acquisition could not have come at a more crucial time for Alltel, seeing as though the company was dealing with financial troubles as a result of a buy out from TPG Capital and GS Capital Partners (subdivisions of Goldman Sachs). Consequently, the company was having trouble with selling the debt they accumulated (as a result of the buyout aforementioned) in order to finance the acquisition. Alltel, sought assistance from various banks and were unsuccessful in their efforts, nevertheless, Verizon intercepted Alltel's search for financing and decided to pay $5.9 billion and acquire the remaining debt balance. Although, the acquisition, at first glance appeared to be more of a liability than an asset, the acquisition turned out to be a win/win for all parties involved. Alltel was able to reposition themselves in the marketplace by glomming onto a telecommunications giant in the wireless industry. Their efforts to combine forces and exchange resources allowed Verizon to strengthen their marketability and improve their status within their wireless industry.

Verizon sought to acquire Alltel, by joining forces however; Verizon has agreed to pay $5.9 billion in addition to assuming an insurmountable debt of about $22.2 billion. The upward side to the acquisition is the wide array of consumers Verizon will acquire as a result, thus creating one of the world's largest and most successful wireless carriers in the country. The acquisition is thought of (by Verizon executives) as a means to generate substantial revenue, increased ROI (Return-On-Investment), expand globally, and acquire new consumers while retaining current consumers.

The acquisition could not have come at a more crucial time for Alltel, seeing as though the company was dealing with financial troubles as a result of a buy out from TPG Capital and GS Capital Partners (subdivisions of Goldman Sachs). Consequently, the company was having trouble with selling the debt they accumulated (as a result of the buyout aforementioned) in order to finance the acquisition. Alltel, sought assistance from various banks and were unsuccessful in their efforts, nevertheless, Verizon intercepted Alltel's search for financing and decided to pay $5.9 billion and acquire the remaining debt balance. Although, the acquisition, at first glance appeared to be more of a liability than an asset, the acquisition turned out to be a win/win for all parties involved. Alltel was able to reposition themselves in the marketplace by glomming onto a telecommunications giant in the wireless industry. Their efforts to combine forces and exchange resources allowed Verizon to strengthen their marketability and improve their status within their wireless industry.

In order for the acquisition to take effect, Verizon needed approval from regulators (the Federal Communications Commission FCC) to proceed. If Verizon desired to acquire Alltel, then they must first agree to sell operations in 105 markets where Alltel operates (Reardon, 2009). Unfortunately, this transition was a difficult one for the consumers and created a significant impact in the beginning as a result of the resistance to change. Verizon consumers were unable to receive services from Alltel stores and likewise for Alltel customers. During the transitional phase, the company was working towards improving the company's overall functionality by ensuring that consumers did not lose the level of quality they were once accustomed to.

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