Sale of Alltel Tops List of 2007 Deals

(For a list of the biggest deals made in Arkansas in 2007, click here and here. A spreadsheet version of this list is also available.

For a look at the top deals nationally, click here and here.)

The $27.5 billion buyout of Alltel Corp. by two private equity firms was the biggest deal in Arkansas in 2007. Nothing else came close.

And what would have been the second largest transaction - the sale of Acxiom Corp. - failed to happen. It was that kind of deal-making year, not only in Arkansas but nationwide.

Alltel's deal was actually the second-largest private equity deal in the nation in dollar value, according to Dealogic. It was exceeded only by Kohlberg Kravis Robert's purchase of TXU Corp. of Dallas, the Texas electric power company, for $43.8 billion.

That Alltel had been positioning itself for a sale was certainly no secret at the beginning of last year. Talk about Alltel on the sale block started when it spun off its wireline operations to form Windstream Corp. of Little Rock in 2006. Talk picked up as Alltel CEO

Scott Ford acknowledged that the company was looking at a range of strategic options, including a sale. But it was May before TPG Capital LLC and GS Capital Partners came up with the dough to seal the deal.

Before the transaction was completed, speculation arose about who the buyer might be. AT&T and Verizon were thought to be interested in the nation's fifth-largest wireless carrier. By selling to the private equity firms and going private, Alltel remains in Little Rock with nearly all its management intact.

And it proved to be quite the boon to investors. Stockholders received $71.50 a share in the deal - a 22.6 percent premium over the stock price when the rumors of a sale started the previous December.

There are advantages to being a private company, such as not being required by government regulations to reveal all the inside workings so that everyone, including competitors, can see what you're up to. There's also less pressure on the company to meet Wall Street's quarterly earnings expectations, leaving management with more options to expand the company.

The general satisfaction with the Alltel sale provides a sharp contrast with what would have been the second-largest deal in Arkansas last year.

Acxiom announced, also in May, that Silver Lake Partners and ValueAct Capital were buying the company for $3 billion. ValueAct was already the largest shareholder in the data-mining firm.

Acxiom stockholders were to receive $27.10 in cash for each outstanding share of stock, a 21 percent per share premium over Acxiom's average closing price during the previous month.

But as Acxiom turned in two consecutive quarters of poor earnings and its stock began to slip, the word "arbitrage" began to be bandied about. Investors widened the spread between the market price and the acquirers' offer, indicating faltering confidence that the shares would soon be worth $27.10.

Acxiom's poor quarterly results combined with the nationwide credit crunch undid the deal. On Oct. 1, the obvious became reality as the private equity firms bailed out and the buyout was called off.

Since the deal fell through, Acxiom's stock has continued to plunge, dipping below $10 a share last week.

The company did get $65 million in breakup money, but that was negotiated down from $110 million, which implied that the management of Acxiom bore a significant share of the blame. The $65 million payment ranks No. 18 on the list of 2007's biggest deals.

Charles Morgan, who led the company for more than 30 years, resigned in November as both chief executive and chairman of the board in exchange for a $3 million buyout He was to continue receiving his annual salary of $815,000 until a replacement was hired and then $500,000 per year during a three-year consulting contract. Last week, Acxiom named John Meyer, 51, its new CEO. Meyer, who lives in Dallas, will move to Little Rock and is scheduled to take the helm Feb. 4.

If the deal had gone as planned, Morgan would have received more than $80 million in cash, but as the share price dropped, so did Morgan's Acxiom fortune - to less than $33 million.

Wal-Mart Transactions

Wal-Mart Stores Inc., which often as not leads Arkansas Business' annual list of biggest deals, made a couple of deals this year. In February, the retail giant agreed to a $1.2 billion transaction with Bounteous Co. Ltd. of Taiwan to purchase a 35 percent stake in its Trust-Mart stores in China. Under the agreement, Wal-Mart would acquire control of the chain by 2010, subject to certain conditions in the agreement.

Bounteous operates 101 "hypermarkets" in 34 Chinese cities under the Trust-Mart brand. In 2005, Trust-Mart had sales of $1.7 billion. Trust-Mart would continue to operate under that name, but it and Wal-Mart will both open new stores in China, one of the world's fastest-growing retail markets.

Wal-Mart already employed 37,000 people through its 68 Supercenters, three Sam's Clubs and two Neighborhood Markets in 36 Chinese cities.

In October, Wal-Mart bought the remaining shares of Seiyu Ltd. of Japan for $900 million. Seiyu has been struggling in Japan, and Mike Duke, vice chairman of Wal-Mart, said the company believes full ownership of Seiyu is the best way for both companies to "accelerate the delivery of long-term benefits" to customers, employees and business partners.

Windstream, the Alltel spinoff, made its first major acquisition by buying CT Communications Inc. of Concord, N.C., in May for $585 million. Windstream paid $31.50 a share in cash for the company - a 31 percent premium to CT Communications' previous 30-day trading average.

Jeff Gardner, president and CEO of Windstream, said the company will look to acquire more rural assets in the next five years.

In Arkansas, only 40 deals this year were valued at $10 million or more, slightly more than half of what was recorded the year before. But the large Alltel transaction skewed the value of those transactions.

National Picture

Nationally, deals hit a record $1.57 trillion, up 5.5 percent over 2006, according to Thomson Financial. European mergers totaled $1.78 trillion, and worldwide mergers hit $4.4 trillion last year, up 21 percent from 2006.

Most of the transactions happened in the first half of the year, before the housing bubble burst and the subprime credit concerns hit in full force.

Much of the U.S. merger volume was fueled by easily obtained debt financing, which helped private equity firms and other buyers borrow large amounts of money at attractive rates. Of course, much of that hit the wall in July as credit was tightened and borrowing became more expensive.

Some think the easy money days of the big private equity deals are through since the subprime crisis has brought the financial institutions back to earth. Other analysts, however, say that private equity will simply focus on different areas and possibly smaller buyouts, especially overseas in emerging economies.

Overlooked in the big slowdown of the huge private equity transactions in the last half of the year, down by more than 50 percent from the first six months, was the fact that corporate transactions were still strong.

Corporate deal volume reached $955 billion in the fourth quarter, accounting for 87 percent of all such volume.

Goldman Sachs Group, Morgan Stanley and Citigroup ranked as the top merger advisers for deals, according to Thomson Financial.