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

By Sinead Carew and Paritosh Bansal

NEW YORK (Reuters) - Verizon Wireless is close to sealing a roughly $27 billion deal to buy rural mobile service provider Alltel Corp, aiming to overtake AT&T Inc (T.N) as the top U.S. wireless service, a source familiar with the talks told Reuters on Wednesday.

Verizon's move, in which it would take on about $23 billion of Alltel debt, was a surprise to many analysts as it came only seven months after Alltel was taken private by TPG Capital TPG.UL and Goldman Sachs' (GS.N) GS Capital Partners. The leveraged buyout saddled Alltel with the debt.

That $27.5 billion deal in November 2007 was the largest ever private equity investment in the U.S. wireless industry, but it closed amid a mounting credit crisis that has curtailed the leveraged buyout boom.

Stifel Nicolaus analyst Chris King said the tightness of capital markets is probably a reason why TPG and Goldman appeared open to such a quick turnaround of Alltel. "If they can break even in a far worse capital market, it certainly makes some sense for them to want to get out," he said.

TPG, Goldman, Alltel and Verizon all declined comment.

While talks were still ongoing and details yet to be worked out, an announcement could come as soon as Thursday, said the source, who spoke on condition of anonymity before a deal.

A second person briefed on the talks confirmed that Verizon and Alltel were in talks but did not have specific details.

While surprised at Verizon's move, analysts said the acquisition made sense for the No. 2 U.S. mobile service, which is 55 percent owned by Verizon Communications Inc (VZ.N) and 45 percent owned by Vodafone Group Plc (VOD.L). That ownership would not change under an Alltel deal, the first source said.

"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."

A Verizon deal would value Alltel at eight times its earnings before interest, tax, depreciation and amortization, compared with its November sale to private equity firms for about 9 times EBITDA, the source said.

DEBT REFINANCING

Analysts said Verizon could be in a good position to refinance Alltel's debt at a lower interest rate.

Others said that a deal could also help Verizon create savings from a network and handset perspective.

For the private equity leveraged buyout, Alltel took out a $16.25 billion senior secured bank loan credit facility and a $7.75 billion senior unsecured bridge loan that were underwritten originally by Citigroup (C.N), Barclays (BARC.L), Royal Bank of Scotland (RBS.L), and Goldman.