UPDATED: Alltel: Groups to Buy Operations for $27.5 Billion

by Lance Turner  on Sunday, May. 20, 2007 10:01 pm  

Alltel CEO Scott Ford, in this file photo.

Alltel Corp. of Little Rock confirmed Sunday night that it has entered a definitive merger agreement with Texas Pacific Group of San Francisco and Goldman Sachs Capital Partners of New York for about $27.5 billion.
The wireless company said the groups will acquire all outstanding common stock of Alltel for $71.50 per share in cash, about a 10 percent premium over Alltel's Friday closing price (NYSE: %%AT%%) of $65.21.
In a news release, Alltel said its board of directors unanimously approved the deal and that current management would remain in place, including CEO Scott Ford, who stands to receive $89 million should he leave the company if a "change of control" takes place, according to the company's latest proxy statement.
The merger is set to close by the fourth quarter of 2007 or the first quarter of 2008, contingent upon closing conditions, regulatory approval and Alltel shareholder approval.
The company said shareholders will be asked to vote on the deal at a special meeting to take place on a date yet to be announced.
"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 in a news release "[Texas Pacific] and [Goldman Sachs] are long-term investors who are willing to make the investments necessary to continue to grow our wireless business in all of our markets. This transaction also ensures our customers can continue to rely on Alltel to deliver high-quality service and leading edge products and services."

Alltel, with about 3,042 employees in Arkansas, is the state's 16th largest employer, according to Arkansas Business' most recent list. It has more than 14,000 employees nationwide, and 12 million customers in 35 states. In 2006, it had about $7.9 billion in revenue.

Spectrum Play
As Arkansas Business reported in April, one of the reasons pushing Alltel to sell is an upcoming government auction of frequency spectrum.
The Federal Communications Commission's planned 700 MHz spectrum auction, set to take place before the end of January, is viewed as a pivotal moment for the telecommunications industry. The powerful spectrum offers telecoms new possibilities for wireless data services and video -- even Internet services reliable and fast enough to compete with DSL and cable Internet options.
But it's also expensive. The FCC expects to raise $12 billion in the auction, and it's conceivable, analysts say, that Alltel could spend $3 billion-$4 billion to buy parts of it.
A merger with a private equity group, such as what Alltel announced Sunday night, should help the company buy the spectrum. Otherwise, it risks losing out to competition, which could use the new spectrum to build a better network over its footprint, the largest in country.

Experienced Buyers
Texas Pacific Group, led by David Bonderman, James G. (Jim) Coulter and William S. Price III, has a range of buyouts under its belt. Among them, two 2005 acquisitions: Hollywood movie studio Metro-Goldwyn-Mayer and upscale retailer Neiman Marcus.
Other deals include Seagate Technology, ON Semiconductor, Burger King, Ducati, J. Crew and Petco.
At the end of April, Goldman Sachs Capital Partners announced that it, along with Kohlberg Kravis Roberts & Co. L.P., would acquire Harman International Industries Inc., which makes high-end audio products, for $8 billion.

Exploring Options
The merger announcement came after a Wall Street Journal report late Sunday evening that said Alltel was close to deal and would announce it "soon."
The Wall Street Journal reported last week that deal appeared to be gaining momentum. This, after news reports named three private equity groups that had formed to consider buying the wireless company.
Investors and analysts have been buzzing about a possible Alltel buyout since December, when the Journal first reported that equity firms were circling the company. At the company's fourth-quarter earnings call in February, CEO Scott Ford confirmed that the wireless phone company was exploring several strategic options, including a competitive or private equity buyout, but has since had little to say about its options. The company remained mum at its annual shareholders meeting last week.
Alltel's exploration came less than a year after it completed the spinoff of its wireline operations into a new Little Rock-based public company, Windstream Corp. It merged its wireline business with Valor Communications in deal valued at $9.1 billion.
In addition to private equity groups, other possible buyout candidates had included such Alltel competitors as Verizon and AT&T.
Word of the deal comes less than a week after another Arkansas public company, data services firm Acxiom Corp. of Little Rock, announced it will sell to a pair of private equity firms -- ValueAct Capital Partners of San Francisco and Silver Lake Partners of Menlo Park, Calif. -- for about $3 billion and go private.

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