Debtload Causes Verizon-Alltel Static

This merger creates a huge debt burden, and investors should heed news that provides that perspective.
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I have to ask this question the morning after the Verizon (VZ) - Get Report-Alltel (AT) - Get Report deal because so many business reporters did not.

What is $63 billion in bulging debt between friends?

Verizon, the number two wireless company, on Thursday announced its plot to buy Alltel, the number five in wireless, and Wall Street traders, and their enablers in the business media, cheered heartily. The stock went up 5% and more articles than you can imagine either played down or outright ignored Verizon's debt load. You remember the issue of debt, right? It never seems like such a big deal when you take it on, but always seems to matter in the end.

It is worth at least weighing as a primary issue, no?

Well, not according to

Forbes

, which offered a

happy-go-lucky article

about the merger that only deigned to make a brief mention of the debt load, completely failing to throw up even a tattered flag of caution.

They Just Don't Get Verizon!

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Debt? They did not mention it, instead centering around a hyperbolic reference to global conquest:

"Verizon Wireless is ready to take over the wireless world now that it has entered into an agreement with Alltel and Atlantis Holdings to acquire Little Rock, Ark.-based Alltel, making Verizon the largest wireless network in the world."

We then get a single short sentence that clues us in on the more than $22 billion in Alltel debt that Verizon will be assuming. But that thread is completely dropped with this sentence: "The deal is expected to be completed by the end of the fourth quarter, pending regulatory approval." And we are then off to the happy races with this cherry quote: "`This is very natural and logical fit for Verizon Wireless, given the complementary geographic coverage and technology, for Verizon to grow its business,' said Verizon spokesman Jim Gerace."

OK, I guess a flak isn't going to make much of debt. But shouldn't the reporter get back to it? After all, Alltel's $22 billion, plus the $6 billion Verizon's using to buy it brings Verizon up to $63 billion, which is more than men like The Business Press Maven make it two entire years.

No such luck. Instead this writer goes off and running on the geographical coverage theme instead, with praise for this comically small scale opportunity:

"The company told Forbes.com that it has not yet decided how to integrate Alltel into the company, but noted that Verizon does not yet have a substantial presence in Little Rock and would expect to keep a large portion of Alltel's headquarters."

Yes, folks, this brings Verizon's debt total up to that of a small nation...but they'll finally get that strategically essential toehold in Little Rock.

You know what they say, today Little Rock, tomorrow the world. Of course that did not even work for the Clintons, so don't you think the lurking, looming issue of debt load is more important that expansion in Little Rock? We then hear, in rapid succession, that investors are not worried about the deal (evidence, I suppose, was that single 5% move up, though 1% must be distracted because that's what the stock went down the day before when news was leaking.) And we end on this falsely positive note: "The potential deal itself did not attract much criticism from a strategic point of view."

The only response I can offer is to hold that debt-denying article up to the light of an

excellent effort by Fortune

to weigh what is really going on. Look at their appropriately cautious headline: "Verizon bets the house on wireless: Wall Street applauds the giant telco's acquisition of Alltel, but a hefty debt load should give investors pause."

Remember that earlier lead about world conquest? Here is the more appropriate tact, one that puts the future in proper perspective for you, the savvy investor who has been misled by Wall Street and the business media on these sorts of debt-laden deals one too many times:

"Verizon is betting its planned purchase of Alltel will keep growth at its Verizon Wireless unit humming along. The giant telco better be right, because it is borrowing a huge sum to make the deal happen."

Fortune

makes it clear Verizon might have gotten a good deal. But it came as a function, ironically enough, of other companies trying to get debt off their books:

"What has made for a better day at Verizon is the distress being felt in the credit markets. The banks that financed the TPG-led buyout last year - Goldman Sachs (GS, Fortune 500), Citigroup (C, Fortune 500), Barclays (BCS) and Royal Bank Scotland (RBS) - are still holding about $24 billion in notes that haven't exactly been an easy sell amid the credit crunch."

And rather than a mealy-mouthed summation, the article weighs what it is to "shoulder that heavy burden" and then ends with a kicker that waves that flag of caution: "But if Verizon fails to integrate Alltel flawlessly and growth slows further, issues like heavy costs, line losses and bulging debt could again rise to the surface."

Amen.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven? column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;

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