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Credit Crunch Endangers Nextel Sale, Alltel Acquisition


Sprint CEO Dan Hesse recently questioned whether any potential buyer of the Nextel unit could raise the necessary capital to fund the purchase.

By W. David Gardner
InformationWeek
October 10, 2008 01:59 PM

The upheaval in U.S. financial markets is squeezing wireless companies, particularly those eager to sell off major assets like Alltel and Sprint Nextel.

Sprint has been working for months to sell off its Nextel unit, and various offers for $5 billion to $6 billion for the operation are reported to have made. That's well below the $35 billion that Sprint paid for Nextel a few years ago.


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According to a report on FT.com, Sprint CEO Dan Hesse recently questioned whether any potential buyer of the Nextel unit could raise the necessary capital to fund the purchase. That means the credit crunch could place any deal in jeopardy. No matter, said Hesse, who has vowed to continue improving the Nextel operation whether a buyer comes along or not.

As for the Verizon Wireless-Alltel deal, the credit difficulties have upped the price Verizon would have to cough up to consummate the acquisition, because Alltel bonds and other credit instruments would require increased infusions of capital. With its sterling credit rating, Verizon could still carry out the acquisition, but it would require more capital than was initially expected when the deal was announced earlier this year.

On Tuesday, Verizon offered to divest spectrum in 15 markets in addition to the 85 markets it had earmarked for divestiture earlier. For now at least, the acquisition is continuing forward and earlier this week Verizon said it believes the deal will close by the end of the year.

But the stock and financial markets give signs of fears the deal could be aborted.

"The market seems to be worried that Verizon will choose to walk away rather than refinance at a higher rate," analyst Craig Moffett told the Bloomberg news service. Moffett is an analyst at Sanford C. Bernstein & Co.

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.


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