Verizon Wireless has announced that it has entered into an agreement with Alltel Corporation and Atlantis Holdings LLC, an affiliate of private investment firm TPG Capital and GS Capital Partners, to acquire Alltel Corporation in an all-cash merger.

A statement on Alltel's website confirms that Verizon Wireless will acquire the equity of Alltel for approximately $5.9 billion. Based on Alltel's projected net debt at closing of $22.2 billion, the aggregate value of the transaction is $28.1 billion.

The merger is subject to regulatory approvals, and is likely to be completed by the end of the year. Analysts say that the deal could face some regulatory hurdles, as the Federal Communications Commission (FCC) could require Alltel to divest some assets in areas where its business overlaps with Verizon.

Verizon has long been seen as a potential bidder for Alltel, and the two have held talks in the past, though speculation quieted down after Alltel was sold. Earlier attempts at the merger were foiled in part by Vodafone, which owns 45 per cent of Verizon Wireless, who did not want to see any dilution of its own equity in the US carrier.

Post the declaration of the merger, Vodafone stock fell a few pennies, as although the deal will greatly help Verizon Wireless, Vodafone is unlikely to see a monetary gain for some time.

Post merger, Verizon Wireless will have to use the money generated to pay off debt, which would delay the annual cash dividend that Vodafone received for its 45 per cent holding in Verizon Wireless.

Alltel's humungous debt is a result of its last year buyout by private equity players TPG Capital and GS Capital Partners, who took the company private in a leveraged buyout of $27.5 billion. The PE firms paid for the acquisition by borrowing money, and shifting the debt to Alltel.

However, since that deal closed in November 2007, investment banks have taken huge hits and losses in tight credit markets brought on by the sub prime crisis that has forced many to sell assets to raise cash. Mreover, private-equity buyers faced higher borrowing costs, and their desire to reduce their financial exposure spurred the sale of Alltel in a short seven months after it was taken private by the PE firms.

The statement says that once the transaction closes, customers of both companies will have access to an expanded range of products and services, including a premier lineup of basic and advanced devices and an expanded IN Network calling community. With customer growth slowing in the US, acquisitions are becoming a preferred way for larger carriers to boost revenue and subscriber bases, while reducing competition.

By adding Alltel's 13.2 million mobile customers, Verizon's customer base would gross 80 million, catapulting it over the current market leader AT&T which serves more than 71 million, to the number one slot.

Verizon Wireless expects to realize synergies with a net present value, after integration costs, of more than $9 billion, driven by reduced capital and operating expense savings. Synergies are expected to generate incremental cost savings of $1 billion in the second year after closing.

Verizon and Alltel have a roaming agreement that lets the two carriers use each other's network when their customers travel out of range of their own cell towers. Both also use the same CDMA network technology pioneered by Qualcomm Inc.

Alltel customers will benefit from advanced services including over-the-air downloadable music from a three-million-song library, and a network that is nationwide, for a uniform coast-to-coast experience. They also will be able to take advantage of industry-leading consumer policies, including Test Drive and Worry Free Guarantee, the statement said. Alltel has the largest geographic reach of any carrier, operating mainly in rural areas or small cities in the South, Midwest and West.

Both Alltel and Verizon Wireless use a common network technology (CDMA), which provides advantages of a seamless transition for Alltel customers, ease in integrating the two companies' networks, and scale efficiencies in operating the larger integrated network.

Lowell McAdam, Verizon Wireless president and chief executive officer said, ''This move will create an enhanced platform of network coverage, spectrum and customer care to better serve the growing needs of both Alltel and Verizon Wireless customers for reliable basic and advanced broadband wireless services.''

Alltel serves over 13 million customers in 34 states, including 57 primarily rural markets that Verizon Wireless does not serve. The merger puts the Alltel markets and customers on a path to advanced 4th generation services as Verizon Wireless deploys LTE technology throughout its network over the next several years.

Alltel's customers will also benefit from Verizon Wireless' Open Development initiative, which welcomes third-party devices and services to use the Verizon Wireless network. Verizon Communications, majority owner of Verizon Wireless says that the transaction will be immediately accretive, excluding transaction and integration costs.

''This is a perfect fit, with Alltel's high-value post-paid customer base, its solid financials, our common network technology, and significant, readily attainable synergies,'' said Ivan Seidenberg, Verizon chief executive officer and chairman of the Verizon board. ''Verizon Wireless' acquisition of Alltel clearly provides opportunities for enhanced value for Verizon shareholders.''

Alltel's president and chief executive officer Scott Ford will continue as head of Alltel until the merger is completed. ''Both Alltel and Verizon Wireless have long track records of delivering a high-quality customer experience in the marketplace,'' Ford said. ''The combination of our two companies will continue and improve upon that heritage as, together we can more quickly deliver an expanded range of innovative products and services to our customers.''

Morgan Stanley acted as financial advisor to Verizon Wireless on this transaction and is providing bridge financing. Citibank, Goldman Sachs and RBS advised the sellers on the transaction.