Following Alltel’s wireline striking workers, its spinning off that businessBy Dave Porter

New York - Alltel Corporation (NYSE: AT), the largest rural local telephone provider in the nation, said Friday that it was spinning out its wireline business in a $9.1 billion deal to concentrate on its wireless market. Investors applauded the move, pushing Alltel shares up $1.06, or 1.64%, to $65.88 Friday.

Arkansas-based Alltel will combine its wireline business with Valor Communications Group Inc. (NYSE: VCG), creating a business with 3.4 million customers in 16 states. Alltel also will be transferring $4.2 billion in debt.

Shares of Valor rose 7 cents on the news to close at $12.31, an increase of .57%.

Alltel Chief Executive Scott Ford called the spin off a good move for the shareholders. That the wireline business would no longer be subordinated to Alltel’s dominant wireless business. Though Ford should have said shareholders lucked out, considering how Voice-Over-Internet-Protocol (VoIP) is taking hold and slowly chipping away at the marginal wireline side of the communications business.

Skype, Europe’s largest VoIP provider, just had a slice of its market taken by Yahoo! (Nasdaq: YHOO) which announced that it was getting into the VoIP business and would be offering the service for less.

To further enhance Alltel’s spin off, Ford said that Alltel would be buying back $3 billion of its stock on the market, this, after Alltel rose 10 percent this year on speculation that the telecommunications company would be doing something with its wireline business, shows that Alltel puts a lot of value in its growing wireless business.

Valor, which first went public in February, is a rural telephone provider in New Mexico and Oklahoma has seen its shares decline from their initial $15 IPO price.

Terms of the Alltel wireline spin off would give Alltel 85% of the new entity and Valor will issue 400 million shares to Alltel shareholders for its share. Basically, Alltel investors will own one share of the wireless unit and receive 1.05 Valor shares for each Alltel share. The deal is being done in a tax-free transaction known as a Reverse Morris Trust transaction.

The deal may have caused Alltel to have a second motive in buying back $3 billion of its shares, for after the sale of its wireline business unit the company - at these market prices - is an attractive takeover target for Verizon (NYSE: VZ).

A Verizon buyout would put the company in a better position after Cingular bought AT&T Wireless and Sprint acquired Nextel.

Earlier this year, Alltel bought Western Wireless and some assets from Cingular. Alltel intends on selling its Western Wireless sell Haitian and Bolivian wireless operations, though it did not disclose what it was asking for those operations.

Alltel is now the nation’s 5th largest wireless carrier with 11 million customers across 34 states.