Verizon in talks to buy Alltel for about $27 billion: source

By Sinead Carew and Paritosh Bansal

NEW YORK (Reuters) - Verizon Wireless is in talks to buy rural mobile service provider Alltel Corp for about $27 billion in debt and cash to create a company that would overtake AT&T Inc as the No. 1 U.S. mobile service, a source familiar with the talks told Reuters on Wednesday.

While the details of the deal were still being worked out, the person, who declined to be identified, said that the $27 billion valuation could be comprised of mostly debt and a smaller amount of cash. Alltel had $23.35 billion in long-term debt on its balance sheet at the end of the first quarter.

A second person also briefed on the talks agreed Verizon was in talks to buy Alltel.

Analysts were surprised by the timing of the deal since Verizon had stood by when private equity investors bought Alltel last year, but they said it made sense for Verizon Wireless to expand through an acquisition.

"Put simply, they can run Alltel more efficiently than Alltel can," said Bernstein analyst Craig Moffett.

"It takes a strong wireless franchise, and increases Verizon's exposure to wireless which is the best business in their portfolio. It lets them exercise their advantages of scale to run the business."

The deal values Alltel at eight times its earnings before interest, tax, depreciation and amortization, compared with its November sale to private equity firms for about 9.2 times EBITDA, the first source said.

Alltel was sold to private equity firms TPG Capital and GS Capital Partners, the buyout arm of Goldman Sachs for about $25 billion on November 16. Including debt, the price was about $27.5 billion.