Private Equity Groups Nab Alltel in $27.5B Deal

Private investors will acquire wireless carrier Alltel in a deal worth around US$27.5 billion, as the private equity buyout trend reaches into the mobile space for the first time.

Alltel’s board of directors agreed over the weekend to be acquired by TPG Capital and Goldman Sachs Capital Partners for $71.50 per share, or about $24.8 billion. The firms also agreed to assume about $2.7 billion in Alltel’s long-term debt.

The deal will result in Alltel being taken private and raises some questions about its long-term future, though Alltel said it chose the buyout partners in part because they pledged to continue to serve existing customers and to keep most of the company’s employees in place. CEO Scott Ford will retain that role and title after the buyout.

Benefiting Shareholders

Alltel was on the block for several months, and the stock had recently risen in anticipation of the Little Rock, Ark.-based carrier — the fifth largest national wireless service provider in the U.S. — being acquired.

“This transaction delivers substantial and certain value to our shareholders while providing the company with long-term partners who share our commitment to our customers, employees and the communities we serve,” Ford said.

“Alltel has a long history of growth through strategic acquisitions, combined with a strong focus on customer service,” said Richard Friedman, head of the Merchant Banking Division at Goldman Sachs. “We are excited about this opportunity to partner with an exceptional management team to continue to support their strategies for growth.”

A Long Time Coming

Reports that Alltel was considering a sale first surfaced late in 2006, and the company in February announced it hired a banking firm to help it explore “strategic alternatives.” A private equity sale seemed the most logical path — most other national carriers would likely have run into antitrust questions if they had tried to gobble up Alltel, especially after the massive wave of consolidation that has hit the telecom industry in recent years.

Alltel has been grooming itself for sale for some time, noted telecom analyst Jeff Kagan.

It expanded its footprint significantly with its $4.4 billion purchase of Western Wireless at the same time that it was sharpening its focus to exclude non-wireless activities. In 2003, it sold off its information system division and last year spun off its traditional wireline calling business.

“Alltel has structured itself to be bought,” Kagan told the E-Commerce Times. “That is what we have been waiting to happen during the past year.”

While some private equity buys lead to companies being dismantled and revamped considerably, the buyers of Alltel may be content to continue to run it as a national wireless carrier for some time, Kagan said.

“Alltel seems to be a well-run company with happy customers, so tweaking rather than wholesale changes should be expected,” he added.

Shares of Alltel were up almost 5 percent in morning trading Monday to $69.93.

Private Parts

Alltel’s buyers include the private equity arm of Wall Street giant Goldman Sachs and TPG, a buyout firm formerly known as Texas Pacific Group and one of the most active firms in the current tidal wave of private equity cash flowing into the stock market.

TPG had a hand in the $45 billion buyout of a Texas utility in a deal hailed at the time for its environmentally friendly angles — TPG and other buyers agreed to cancel plans for several coal-fired power plants.

Private equity buyers have been helping to drive the stock market higher in recent weeks with a rash of high-profile deals, such as last week’s $7.4 billion buyout of automaker Chrysler by Cerberus Capital. Private equity firms are also vying for the right to acquire music label EMI.

Private equity firms have announced some $370 billion worth of buyouts so far this year, putting the industry on pace to set a new record, breaking last year’s high water mark of $730 billion, according to Dealogic.

The current rash of private equity buyouts mirrors an earlier wave of leveraged buyouts that hit Wall Street in the 1980s, with some key differences, Peter Cohan, an analyst with venture capital and consulting firm Peter S. Cohan & Associates, told the E-Commerce Times.

Today, buyers are more likely to retain CEOs — and many enjoy being freed from the requirements to hit quarterly numbers. Additionally, shareholders are more likely to receive a significant premium for their stock.

One thing hasn’t changed — such buyouts often lead to job cuts or outsourcing as the new owners seek cost savings, said Cohan, who predicts the information technology services sector could be the next niche targeted for a major buyout. “Unfortunately, workers are generally the big losers, just as they were 20 years ago,” he said.