Verizon Wireless, a unit of Verizon Communications Inc. (NYSE: VZ) closed on the $28.1 billion acquisition of wireless rival Alltel Wireless late last week and is now the largest wireless company in the U.S., leapfrogging AT&T, Inc. (NYSE: T). The purchase amount includes $5.9 billion in equity and $22.2 billion in debt from TPG Capital, which had purchased Alltel for $27.5 billion in the spring of 2008.

Although it was a short-term deal that TPG Capital was after (it made some money, after all), Verizon is once again the top dog in U.S. wireless service. For some reason, the industry is insisting on combining all kinds of competitors to leave just a handful of them to serve customers. Will this combination be in the best interest of consumers? It doesn't matter. Like most mergers, it is meant to bring in more revenue and try to stem the losses Verizon Wireless has seen since AT&T became the exclusive distributor for Apple, Inc.'s (NASDAQ: AAPL) enormously successful iPhone.

Verizon's customer base of more than 83 million customers will now be the force to reckon with when newer devices are created by manufacturers and wireless carriers are looked at as release partners. With Verizon and Alltel both using the same technical standard -- unlike the disastrous Sprint and Nextel merger of 2005 -- this new entity is setting itself up from the start to be the pre-eminent wireless company in North America. Let's see if it can remain that way.

During the challenging market conditions over the past year, the telecom sector has felt its fair share of the pain. BusinessWeek brings Standard & Poor's Todd Rosenbluth who suggests that some of these telecommunication stocks could now be good investments for traders as they have a safe dividend.

Despite worries tied to the slowing U.S. economy and increased competition, "we think that some of the concerns are overdone and believe selective stocks are attractively valued," Rosenbluth stated. Rosenbluth also noted that telecom stocks have started showing signs of recovery for the past few weeks, helped by the launch of new handsets and merger and acquisition agreements.

Some of investors' favorite companies are AT&T Co. (NYSE: T) and Citizens Communications Co. (NYSE: CZN). Rosenbluth believes that the launch of Apple (NASDAQ: AAPL)'s new iPhone, 3G iPhone, will stir increased demand for smartphones, helping such companies, while putting pricing pressure on some of their competitors.

22 Mid-Cap Marvels
These top-ranked dividend-paying stocks are also expected by S&P analysts to rise in price during the next 12 months.
Smart Dividend Plays: 22 Mid-Cap Marvels - BusinessWeek

The Rock Star of Money
The world's richest man is having an E.F. Hutton moment. Warren Buffett, dubbed the Oracle of Omaha by Wall Street, is making his voice heard these days. The billionaire investor is out talking to cable TV anchors. To magazines. To shareholders. To Congress. To foreign investors. To a former Wall Street analyst who is writing a book about him. He's even popped up in a CNBC documentary, The Billionaire Next Door: All Access, which delves into all things Buffett. Not to mention a recent guest appearance on the daytime soap opera All My Children. People are really listening to what Buffett has to say more than ever.
Warren Buffett hones rock-star status - USATODAY.com

Despite all the rumors, the $24.7 billion buyout of Alltel (NYSE: AT) got done. With the credit crunch and botched deals, the stock definitely showed volatility. But, the private equity folks at Texas Pacific Group and Goldman Sachs (NYSE: GS) certainly didn't lose interest in the company. The stock price on the transaction was $71.50.

No doubt, Alltel made some key strategic moves to make itself attractive to private equity sponsors. Perhaps the most important initiative was the spin-off of its wireline business in 2006. Basically, this provided more focus for the company.

To get some more perspective on the deal, I checked out the proxy disclosures. Alltel took the approach of a quicker auction – so as to minimize leaks as well as try to get a better valuation.

Alltel had its financial advisors put together a summary LBO (leverage buyout) analysis. The estimates ranged from $59.75 to $70.50. This assumed that the company could fetch 6.5x to 8x multiples on EBITDA by 2012, which would produce a return ranging from 17.5% to 22.5% per year.

All in all, this looks like a textbook example of a quality deal. Yet, there are certainly risks. After all, Alltel will need to manage a debt load of $23 billion.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Research In Motion (NASDAQ: RIMM) is engaged in the design, manufacture and marketing of wireless devices for the mobile communications market. Its popular line of BlackBerry smart phones handle voice, email and text message communications, as well as internet access. The firm also makes radio-based modems that other manufacturers incorporate into portable devices. The company sells to corporations, resellers, and wireless carriers. BlackBerry units are offered by a variety of service providers, including Alltel (NYSE: AT) and Verizon Communications (NYSE: VZ).

The firm pleased investors last week when it reported Q2 EPS of 50 cents and revenues of $1.37 billion. Analysts had been expecting 49 cents and $1.36 billion. The CEO said that recent product and market initiatives are expected to extend business momentum through the remainder of the fiscal year. Management guided Q3 EPS to 59-63 cents (55 cent consensus) and Q3 revenues to $1.60-$1.67 billion ($1.52B consensus). Officials anticipate third quarter subscriber account additions of about 1.65 million. The stock popped on the news and has since passed into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

So far this year, brokers have recommended the shares with one "strong buy," nine "buys" and four "holds." Analysts see a 34% average annual growth rate, through the next five years. The stock's Sales Growth rate (26.84%), EPS Growth rate (100.00%), Operating Margin (27.07%), Net Profit Margin (20.70%), Return on Assets (26.94%), Return on Investment (33.09%), Return on Equity (33.82%) and Net Income per Employee ($140k) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 76% of the outstanding shares. The issue is one of those used to calculate the NASDAQ 100 Index. Over the past 52 weeks, it has traded between $36.00 and $118.80. A stop-loss of $99.00 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

With higher interest rates and pushback in the debt markets, it's been tougher for the private equity folks to get deals done. Just look at the recent IPO of the Blackstone Group (NYSE: BX). The stock has been, well, like a stone.

But, according to this week's Barron's [a paid service], this may be an opportunity. That is, there may be a way to arbitrage returns.

Huh? Well, many deals have a spread between the buyout price and the current stock price. Why? Since a deal has not been closed, there's a risk of a deal falling through.

With the recent general problems in private equity, there's been a widening of spreads.

In fact, there are 10%+ spreads on such marquee companies like First Data Corp. (NYSE: FDC), Alltel Corp. (NYSE: AT), Alliance Data Systems Corp. (NYSE: ADS), and Harrah's Entertainment (NYSE: HET).

These firms have top-tier private equity sponsors. And, in terms of reputation, it would not be good for them to walk away. So while the financing costs may be higher, I still think private equity firms will work pretty hard to get these deals done.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Today's launch of Apple Inc.'s(NASDAQ:AAPL) iPhone (actually, this evening's launch) is sure to set many mobile hands on fire just like every Apple product seems to do these days. In what could arguably be called the most anticipated consumer electronics product launch ever, the iPhone buzz is churning up all kinds of racket, from double-digit percentages of mobile customers leaving current wireless carriers to AT&T (NYSE:T)(just to get the iPhone) to AT&T having a whole army of support and sales personnel ready to face the customer onslaught expected later today and into the weekend. Standard Apple madness, right?

What about the effect all those new subscribers (if they materialize) are going to have on the other wireless carriers in the U.S.? Specifically, Verizon Wireless, Sprint Nextel(NYSE:S), T-Mobile and Alltel(NYSE:AT)? These carriers are the ones that are going to face customer defections en masse if iPhone fever gets wireless subscribers dumping existing carriers for AT&T just to get the iPhone. Who could be the biggest loser here? We're not talking reality shows, but the wireless companies that stand to get hurt the most by not having an iPhone to offer.

Sprint Nextel may have the most to lose, as a Bear Stearns analyst predicts that AT&T will lure almost 1.1 million customers from the carrier to AT&T by next year just due to the iPhone. Sprint Nextel has had three quarters of customer declines (mostly due to the mismanagement of the Nextel customer base and brand), and at the worst possible time, more customers could leave in droves not for service offered, but for a product. Is the iPhone really going to be that revolutionary? The customers who buy it will tell the tale, and if they do believe that it will change the mobile landscape forever, Sprint Nextel will be the first to hear about it-- in the worst possible way.

Dobson Communications (NASDAQ: DCEL) sits in a strange little niche of the telecommunications industry. It provides wireless service to 1.7 million rural customers. And, it has put itself up for sale. The company has a market cap of about 1.7 billion.

Dobson makes almost a quarter of its income from collecting roaming fees from its larger competitors like Verizon Wireless. But, many of those companies are building their own infrastructure to reach consumers outside of urban areas.

It may be that Dobson's board saw the sales of Alltel (NYSE:AT) and figured that it is a good time to cash in by selling to private equity interests. But, Alltel has the fifth largest cellular customer base in the industry.

Dobson's share price is up almost 20% in the last three months, perhaps on speculation that the company will be sold.

But, Dobson may be too small and too dependent on FCC funding for rural phone service. There is conversation that these fees may be cut back or ended.

Some companies just can't find buyers, no matter how much cash is floating around the markets. Dobson may be one of those.

Douglas A. McIntyre is a partner at 24/7 Wall St.

MOST NOTEWORTHY: Cheesecake Factory (CAKE), Buffalo Wild Wings (BWLD), Alltel (AT), Home Depot (HD) and Nokia (NOK) were today's more noteworthy downgrades:

• Cheesecake Factory (NASDAQ: CAKE) was downgraded to Sector Perform from Outperform at CIBC, to Outperform from Strong Buy at Raymond James and to Peer Perform from Outperform at Bear Stearns after the company reduced its second quarter guidance.

• Buffalo Wild Wings (NASDAQ: BWLD) was cut to Neutral from Buy at Merriman on valuation.

• Lehman downgraded Alltel Corp (NYSE: AT) to Equal Weight from Overweight as the firm doesn't expect a competing bid for the company.

• Home Depot (NYSE: HD) was cut to Market Perform from Outperform following yesterday's rally and feels that with the HD sale out of the way, the focus will now turn to Home Depot's ability to grow in the challenging do-it-yourself retail market. Goldman cut Nokia to Neutral from Buy on valuation...

OTHER DOWNGRADES:

• JP Morgan cut Headwaters (NYSE: HW) to Underweight from Neutral.

• Citigroup downgraded Prudential Financial (NYSE: PRU) to Hold from Buy.

• Matrix USA cut Phototronics (NASDAQ: PLAB) to Sell from Hold.

• Ferris, Baker downgraded Gladstone Commercial Corp (NASDAQ: GOOD) to Neutral from Buy.

• Citigroup removed Office Depot (NYSE: ODP) from its Citi Recommended List.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Back in the early 1990s, Clayton, Dubilier, and Rice bought Lexmark International (NYSE: LXK). It was a notable deal because private equity firms were mostly hands-off with tech companies.

Yet it turned out to be a strong performer for Clayton.

Interestingly enough, there's scuttlebutt that Lexmark will go private again. This is based on the analysis of Toni Sacconaghi, who is an analyst with Bernstein Research.

Crunching the numbers, Lexmark sports an enterprise-to-EBITDA ratio of about 6X or so (the shares have lost almost a third this year). This is pretty cheap when you look at other tech buyouts, such as First Data Corp (NYSE: FDC) and Alltel (NYSE: AT).

Then again, there may be a good reason for the relatively low valuation. That is, Lexmark is in a highly cyclical business (printers). In fact, it does look like information technology (IT) spending is slowing down in North America.

Also, Lexmark's licensing deals with Hewlett-Packard (NYSE: HPQ) and Canon could pose a problem. In other words, they could possibly be canceled if there is an acquisition from a strategic buyer.

In today's trading, Lexmark's shares rose 1.61% to $51.65.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

The trend of private equity firms buying out high tech companies continues. According to Bloomberg News, Silver Lake Partners and TPG will take Avaya Inc. (NYSE: AV) private for $8.2 billion -- the biggest LBO of a computer networking firm ever.

Investors will receive $17.50 a share. That's 4.7% more than yesterday's closing price and 28% more than before speculation about a purchase surfaced on May 29.

This is the latest in a string of high tech LBOs. Recent ones include:

• Acxiom Corp. (NASDAQ: ACXM), this computer and database services provider, said May 16 it's being bought by Silver Lake and ValueAct Capital Partners LP for about $2.24 billion.
• Alltel Corp. (NYSE: AT) this fifth-biggest U.S. wireless service, agreed May 21 to be bought by TPG and Goldman Sachs Group Inc. (NYSE: GS) for $27.5 billion.
• CDW Corp (NASDAQ: CDWC) agreed on May 30 to be acquired by Madison Dearborn Partners LLC for $7.3 billion.

I am not sold on the competitive advantages that will result from this deal. Maybe there's some overhead to be cut but I question how much private equity is willing to invest in R&D to jump start Avaya's product pipeline.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.

Like other big businesses, most telecommunications firms find it cost effective to farm out development of their customer interface software systems. One of the best known developers of the specialty programs is headquartered in Chesterfield, Missouri.

Amdocs Limited (NYSE: DOX) provides customer relationship management, sales, and billing software used by telecommunications service providers. It also sells publishing software for generating print and online directories and offers a variety of outsourced communications facility management services. Clients include AT&T (NYSE: T), Alltel (NYSE: AT), Comcast (NASDAQ: CMCSA), Nortel Networks (NYSE: NT), Qwest Communications International (NYSE: Q), Sprint Nextel (NYSE: S) and Verizon Communications (NYSE: VZ).

The stock popped on Monday, powering through 50-day and 200-day moving average resistance levels, on rumors of the potential for a bid from private equity. There was clearly interest in June $40 calls that day, implying more than just idle chatter.

MOST NOTEWORTHY: GlaxoSmithKline plc (GSK), SanDisk Corp (SNDK), Lockheed Martin Corp (LMT) and aQuantive, Inc (AQNT) were today's noteworthy downgrades:

• Deutsche Bank and ABN Amro cut GlaxoSmithKline (NYSE: GSK) to Hold from Buy following the New England Journal of Medicine warnings from Avandia.

• Merrill Lynch cut SanDisk (NASDAQ: SNDK) to Neutral from Buy due to concerns that oversupply in the industry will extend through next quarter.

• Cowen downgraded shares of Lockheed Martin (NYSE: LMT) to Neutral from Outperform based on slower 2007-2008 EPS growth and less cash redeployment upside than General Dynamics Corp (GD) and Raytheon Co (RTN).

• UBS downgraded aQuantive (NASDAQ: AQNT) to Neutral from Buy and RBC Capital cut shares to Sector Perform from Outperform after the Microsoft (MSFT) acquisition...

OTHER DOWNGRADES:

• Piper Jaffray downgraded Cytyc Corp (NASDAQ: CYTC) To Market Perform from Outperform.

• NetBank, Inc (NASDAQ: NTBK) was downgraded to Underperform from Market Perform at Friedman Billings.

• Merrill Lynch downgraded shares of Aeropostale, Inc (NYSE: ARO) to Neutral from Buy.

• AG Edwards downgraded BHP Billiton Ltd (NYSE: BHP) to Hold from Buy.

• Gabelli downgraded shares of Alltel Corp (NYSE: AT) to Hold from Buy.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Although ending mixed, the markets continued higher setting new record highs in intraday action. Amazon.com (NASDAQ: AMZN) booked higher $5.00 (8%) to $68.30 after analyst comments and raised price targets. Alltel Corporation (NYSE: AT) rang higher $4.39 (7%) to $69.60 after two firms agreed to buy the firm. GlaxoSmithKline (NYSE: GSK) fell $4.53 (-8%) to $53.18 on drug data showing increased risk of side effects.

The NYSE had volume of 3.4 billion shares with 1,944 shares advancing while 1,318 declined for a gain of 3.72 points to close at 9,897.46. On the NASDAQ, 1.9 billion shares traded, 2,042 advanced and 1,027 declined for a gain of 20.34 to 2,578.79.

In options there were 5.1 million puts and 6.2 million calls traded for a put/call open interest ratio of 0.82. With the 8% move to the upside on Amazon.com (NASDAQ: AMZN) saw heavy volume on the June 65calls (ZQNFM) and June 70 calls (ZQNFN) with over 22,000 options trading on each. Put were active too with Amazon seeing 34,000 contacts of the June 60 puts (ZQNRL) trading. Other active strikes include QualComm's (NASDAQ: QCOM) June 45 calls (AAOFI) trading 24,000 contacts. Qualcomm also saw over 30,000 contacts on the January 35 and January 40 puts trading 30,000 contracts each. That volume may be related and represent a spread trade.

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Do you have any deadwood in your portfolio? Check out the 18 Warning Signs That Tell You To Dump A Stock.

Disclosure note: Mr. Kersten owns and or controls a diversified portfolios of long and short positions that may include holdings in companies he writes about.

Sprint Nextel Corp. (NYSE: S) opened at $21.00. So far today the stock has hit a low of $20.99 and a high of $21.67. As of 11:50, S is trading at $21.37, up $0.58 (2.8%).

After hitting a one year high of $22.82 a full year ago, the stock dove to a year low of $15.92 in August. S has been gradually rising over the past several months, establishing some new support around 20. Sprint is benefiting from Alltel's (NYSE: AT) agreement to a $27.5 billion private takeover deal. Recent technical indicators for S have been bullish and deteriorating slightly, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.

For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $18 range. S hasn't been below $18 since February and has shown support around $20 recently. This trade could be risky if demand the stagnating phone business worsens even more, but even if that happens, S has been in a slow, steady upward trend the past 10 months.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls a positions in S or AT.