Alltel to purchase 360 Communications $5.89 billion deal to expand wireless business in Southeast


March 17, 1998|By BLOOMBERG NEWS

LITTLE ROCK, Ark. -- Alltel Corp. agreed yesterday to buy 360 Communications Co. for $5.89 billion in stock and assumed debt to expand its wireless phone business in the Southeastern United States.

Alltel will swap 0.74 share for each share of Chicago-based 360 Communications, the wireless company spun off from Sprint Corp. two years ago. Holders of 360 will get $33.21 a share based on Friday's closing price.

Companies in the $200 billion-a-year U.S. phone industry are teaming up to lure customers with a range of products. Little Rock, Ark.-based Alltel will add 360's fast-growing wireless service to its local, long-distance and Internet businesses to make a stronger competitor in BellSouth Corp.'s southern region.

"Complete packages seem to be what customers want. Companies are responding," said Philip Wohl, an analyst at S&P Equities Group, who has an "avoid" rating on 360 and "accumulate" on Alltel.

Still, the combined company, with $4.5 billion in annual revenue, isn't likely to overtake BellSouth, which has more than quadruple the sales.

"You really can't beat the larger players unless you acquire an AirTouch," said Wohl, referring to AirTouch Communications Inc., one of the largest providers of cellular service in the world.

360 Communications shares fell $4.375 to $31.25 yesterday, while Alltel shares fell 31 cents to $44.875.

360 Communications offers wireless phone service to 2.6 million customers in 15 states, including South Carolina, Florida and Virginia. Alltel, which has made more than 250 acquisitions in 50 years, provides local, long-distance, wireless and Internet services to 3 million customers in 14 mainly Southeastern states.

"Can [Alltel] take on the big guys? No," said Charles DiSanza, an analyst at Gerard Klauer Mattison & Co., who doesn't have a rating on either 360 or Alltel. "Can they run a sensible business running long-distance, local and cellular? Yes."

The combined Alltel-360 will retain Alltel's Little Rock headquarters and market its services under Alltel's name. It will have more than 5.6 million customers in 22 states and more than 20,000 employees. The company will sell its products in 250 retail stores.

Alltel will assume $1.85 billion in 360 debt.

"I don't think they overpaid," DiSanza said.

By joining their purchasing, network and administrative operations, the two expect to save more than $100 million by 2000.

"The geographic fit and complementary strategies will allow the combined company to realize significant competitive benefits," said Dennis Foster, 360 president and chief executive officer. Foster said he didn't expect any firings.

Joe Ford, chairman and CEO of Alltel, will retain those jobs at the combined company, while Foster will become vice chairman.

Dennis Ferra, Alltel's chief financial officer, said he expects cash flow of the combined company at "just short of $2 billion," although he didn't specify over what time period. He also said the acquisition won't reduce 1999 earnings per share and will add to earnings in 2000. Ferra declined to provide further financial details.

Alltel recently bought licenses to offer digital wireless phone services in some of 360's markets. Buying 360 could save the expense of building networks in those areas, analysts said.

Alltel is spending $60 million to build networks in cities including Jacksonville, Fla., and Memphis, Tenn., for personal communications services. PCS offers wireless voice and data services using digital technology.

With 360, Alltel itself is more likely to be bought, some analysts said.

"Cellular was an area where Alltel was not strong," said Tom Burnett, founder of Merger Insight, which tracks large mergers and acquisitions. "It might become a more interesting acquisition target."

Alltel remains a much smaller company than the Baby Bells and the biggest U.S. long distance carriers -- AT&T Corp., MCI Communications Corp. and Sprint.

And some question whether offering customers everything from traditional local and long-distance phone services to wireless and Internet access will be a success.

"The jury is still out on one-stop shopping with telephone service," said Kevin Roe, an analyst at ABN Amro, who doesn't have a rating on 360.

The agreement is subject to the approval of shareholders of both companies as well as regulatory approvals. Alltel and 360 expect the acquisition to be completed by mid-summer.

Pub Date: 3/17/98

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