Verizon Wireless 2010 Annual Report Download - page 53

Notes to Consolidated Financial Statements continued
51
NOTE 2
ACQUISITIONS
Acquisition of Alltel Corporation
On June 5, 2008, Verizon Wireless entered into an agreement and plan
of merger with Alltel Corporation (Alltel), a provider of wireless voice
and data services to consumer and business customers in 34 states, and
its controlling stockholder, Atlantis Holdings LLC, an affiliate of private
investment firms TPG Capital and GS Capital Partners, to acquire, in an
all-cash merger, 100% of the equity of Alltel for cash consideration of $5.9
billion and the assumption of approximately $24 billion of aggregate
principal amount of Alltel debt. Verizon Wireless closed the transaction
on January 9, 2009.
We have completed the appraisals necessary to assess the fair values of
the tangible and intangible assets acquired and liabilities assumed, the
fair value of noncontrolling interests, and the amount of goodwill recog-
nized as of the acquisition date.
The fair values of the assets acquired and liabilities assumed were deter-
mined using the income, cost, and market approaches. The fair value
measurements were primarily based on significant inputs that are not
observable in the market other than interest rate swaps (see Note 10)
and long-term debt assumed in the acquisition. The income approach
was primarily used to value the intangible assets, consisting primarily
of wireless licenses and customer relationships. The cost approach was
used, as appropriate, for plant, property and equipment. The market
approach, which indicates value for a subject asset based on available
market pricing for comparable assets, was utilized in combination with
the income approach for certain acquired investments. Additionally, Alltel
historically conducted business operations in certain markets through
non-wholly owned entities (Managed Partnerships). The fair value of the
noncontrolling interests in these Managed Partnerships as of the acquisi-
tion date of approximately $0.6 billion was estimated by using a market
approach. The fair value of the majority of the long-term debt assumed
and held was primarily valued using quoted market prices.
In December 2008, Verizon Wireless and Verizon Wireless Capital LLC, as
the borrowers, entered into a $17.0 billion credit facility (Bridge Facility).
On January 9, 2009, Verizon Wireless borrowed $12.4 billion under the
Bridge Facility in order to complete the acquisition of Alltel and repay a
portion of the approximately $24 billion of Alltel debt assumed. Verizon
Wireless used cash generated from operations and the net proceeds
from the sale of notes in private placements issued in February 2009, May
2009 and June 2009, to repay the borrowings under the Bridge Facility
(see Note 9). The Bridge Facility and the commitments under the Bridge
Facility have been terminated.
The following table summarizes the consideration paid and the allocation
of the assets acquired, including cash acquired of $1.0 billion, and liabili-
ties assumed as of the close of the acquisition, as well as the fair value at
the acquisition date of Alltel’s noncontrolling partnership interests:
(dollars in millions)
Assets acquired
Current assets $ 2,760
Plant, property and equipment 3,513
Wireless licenses 9,444
Goodwill 16,353
Intangible assets subject to amortization 2,391
Other assets 2,444
Total assets acquired 36,905
Liabilities assumed
Current liabilities 1,833
Long-term debt 23,929
Deferred income taxes and other liabilities 5,032
Total liabilities assumed 30,794
Net assets acquired 6,111
Noncontrolling interest (519)
Contributed capital 333
Total cash consideration $ 5,925
Included in the above purchase price allocation is $2.1 billion of net
assets that were divested as a condition of the regulatory approval as
described below.
Wireless licenses have an indefinite life, and accordingly, are not sub-
ject to amortization. The weighted average period prior to renewal of
these licenses at acquisition was approximately 5.7 years. The customer
relationships included in Intangible assets subject to amortization are
being amortized using an accelerated method over 8 years, and other
intangibles are being amortized on a straight-line basis or an acceler-
ated method over a period of 2 to 3 years. At the time of the acquisition,
goodwill of approximately $1.4 billion was expected to be deductible for
tax purposes.
Alltel Divestiture Markets
As a condition of the regulatory approvals by the Department of Justice
(DOJ) and the FCC to complete the acquisition in January 2009, Verizon
Wireless was required to divest overlapping properties in 105 operating
markets in 24 states (Alltel Divestiture Markets). Total assets and total lia-
bilities divested were $2.6 billion and $0.1 billion, respectively, principally
comprised of network assets, wireless licenses and customer relation-
ships that were included in Prepaid expenses and other current assets
and Other current liabilities, respectively, on the accompanying consoli-
dated balance sheet at December 31, 2009.
On May 8, 2009, Verizon Wireless entered into a definitive agreement with
AT&T Mobility LLC (AT&T Mobility), a subsidiary of AT&T Inc., pursuant to
which AT&T Mobility agreed to acquire 79 of the 105 Alltel Divestiture
Markets, including licenses and network assets, for approximately $2.4
billion in cash. On June 9, 2009, Verizon Wireless entered into a defini-
tive agreement with Atlantic Tele-Network, Inc. (ATN), pursuant to which
ATN agreed to acquire the remaining 26 Alltel Divestiture Markets,
including licenses and network assets, for $0.2 billion in cash. During
the second quarter of 2010, Verizon Wireless completed both transac-
tions. Upon completion of the divestitures, we recorded a tax charge of
approximately $0.2 billion for the taxable gain associated with the Alltel
Divestiture Markets.