Just as your pulse is checked during a routine physical, free cash flow is used as an indicator of a company's health. It equals the cash brought in from operations minus the money needed to pay the bills. Think about leftover money in your checking account after you pay this month's bills.

Investors and analysts see this leftover money as a gauge of a company's ability to perform. It is available for transactions such as handing out dividends and working on new products.

Some argue free cash flow is wrongly overshadowed by the emphasis often placed on earnings. Earnings numbers can be manipulated and don't always tell the whole story -- and earnings don't mean much if there's nothing left over after a company pays its expenses. Even if you bring in a six-figure salary, but no money left after paying the bills, are you in great financial shape?

You don't have to be Einstein to figure out free cash flow. To calculate the number, subtract the company's expenditures and dividends from its operating cash flow.

If the free cash flow is written in red ink, it doesn't necessarily signal curtains. This is common for young companies looking to grow. It also could be a result of heavy investments, which in the long run could be worth a standing ovation.

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Thursday, June 05, 2008

Verizon Wireless Buys Alltell in $28.1B Deal

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Verizon Wireless made a bid to become the nation's largest cell phone company by announcing a $28.1 billion deal to acquire regional carrier Alltell.

Verizon plans to acquire Alltell's equity for $5.9 billion and assume its $22.2 billion in debt. The two sides said they hope to have the deal completed by the end of the year.

Just seven months ago Little, Rock, Ark.-based Alltell was taken private in a leveraged buyout worth $27.5 billion by TPG Capital and a unit of Goldman Sachs (GS).

Alltell is the nation's fifth-largest wireless carrier, with more than 13.2 million subscribers and nearly $9 billion in annual revenues. It also serves 57 mostly rural markets that Verizon Wireless does not serve.

Combined with the 67.2 million customers from Verizon Wireless, the company will now have more than 80 million customers, compared to 71.4 million for rival AT&T (T).

Verizon Wireless is a joint venture between Verizon Communications (VZ) and Vodafone (VOD). Shares of Verizon Communications were up about 5% on the deal even though the stock traded lower after initial reports of a merger broke on Wednesday.

"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 Verizon CEO Ivan Seidenberg in a press release.

The deal still faces regulatory approval from both the Federal Communications Commission and the Department of Justice. To receive the green light from the government Verizon may be forced to divest itself of assets in regions where its coverage overlaps that of Alltell's, The Wall Street Journal reported.

Verizon said is sees synergies of $9 billion after integration costs are removed.

The Alltell deal comes just a few months after Verizon Wireless made a $9 billion investment in a radio spectrum at a FCC auction.

Also on Thursday, France Telecom SA (FTE) made an unsolicited offer to buy Sweden-based TeliaSoneraAB (TLSNF) for $42 billion. However, TeliaSonera rebuffed the bid quickly, saying the offer was too low. A deal between the two companies would create the world's fourth-largest telecom.