Alltel Corp. (NYSE: AT) -- volatility Elevated; buyout expected to close in early 2008. AT, a customer-focused communications company, announced on May 21 it will be acquired by TPG Capital & Goldman Sachs Group (NYSE: GS) for $27.5 billion ($71.50 in cash). TPG & GS are expected to close on the purchase of AT in early 2008. AT is recently trading at $66.54. AT October option implied volatility of 16 is above its 9-week average of 12 according to Track Data, suggesting larger risk.
Hilton Hotels Corp. (NYSE: HLT) -- volatility flat; buyout expected to close by year end. HLT announced on July 3 Blackstone Group (NYSE: BX) would acquire all the outstanding common stock of HLT for $47.50 per share. HLT is recently trading at $44.11. BX expects the deal to close before year end. HLT over all option implied volatility of 16 is near its 3-week average according to Track Data, suggesting non-directional risk.
Zale Corp. (NYSE: ZLC) -- implied volatility Flat as ZLC near 13-month low. ZLC, an operator of 2,400 retail jewelry stores, is recently down 11 cents to $22.94. SIG, a specialty jeweler retailer terminated merger talks with ZLC on June of 2006. ZLC over all option implied volatility of 30 is near its 26-week average according to Track Data, indicating non-directional price risks.
Daily M&A Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.
With higher interest rates and pushback in the debt markets, it's been tougher for the private equity folks to get deals done. Just look at the recent IPO of the Blackstone Group (NYSE: BX). The stock has been, well, like a stone.
But, according to this week's Barron's [a paid service], this may be an opportunity. That is, there may be a way to arbitrage returns.
Huh? Well, many deals have a spread between the buyout price and the current stock price. Why? Since a deal has not been closed, there's a risk of a deal falling through.
With the recent general problems in private equity, there's been a widening of spreads.
These firms have top-tier private equity sponsors. And, in terms of reputation, it would not be good for them to walk away. So while the financing costs may be higher, I still think private equity firms will work pretty hard to get these deals done. Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
With the buyout offer for Alltel (NYSE: AT) finalized, the attention is now turning to Sprint Nextel (NYSE: S). Sprint Nextel is a mobile phone and services competitor that is the third-largest mobile telephone provider in the U.S., behind AT&T (NYSE: T) and Verizon (NYSE: VZ) Wireless. Who might acquire Sprint Nextel? With Sprint operating solely in the wireless arena at this time, several industry analysts see a deal coming. AT&T and Verizon have very diversified businesses, while Sprint Nextel remains planted in the wireless arena.
Verizon Wireless operates a national wireless network that is completely compatible with Sprint's CDMA-based wireless network (but not the older Nextel wireless network), and some have thought that Verizon would look at merging with Sprint to leap ahead of AT&T as the largest wireless carrier (by subscribers) in the U.S. Verizon Wireless is just barely behind leader AT&T, so this thinking makes sense. With so much overlapping in the wireless markets, though, the logistics and regulatory scrutiny of such an arrangement would probably raise eyebrows in many circles.
But how about a more doable private equity buyout? It would not be cheap to take Sprint Nextel off the block, as prices in the range of three times that of Alltel's price (which was $27.5 billion) are being floated. Although a near-term deal is not really seen at this time, investors are pricing that kind of speculation into Sprint shares, which have seen a decent rise of over $2 per share since the Alltel deal was announced.
Investors will receive $17.50 a share. That's 4.7% more than yesterday's closing price and 28% more than before speculation about a purchase surfaced on May 29.
This is the latest in a string of high tech LBOs. Recent ones include:
Acxiom Corp. (NASDAQ: ACXM): This computer and database services provider said May 16 it's being bought by Silver Lake and ValueAct Capital Partners LP for about $2.24 billion.
I am not sold on the competitive advantages that will result from this deal. Maybe there's some overhead to be cut but I question how much private equity is willing to invest in R&D to jump start Avaya's product pipeline.
After rumors throughout 2007, it became official this fine Monday, as Alltel Wireless (NYSE: AT) -- the fifth-largest wireless carrier in the U.S. -- agreed to be bought out by TPG Capital (an arm of Texas Pacific) and GS Capital in a transaction worth about $27.5 billion. Alltel Wireless will remain headquartered in Little Rock, Arkansas, as well.
Alltel management has been reportedly aggressively looking to partner with one or several private equity companies since late in 2006, and its board finally found the mark that will allow it do what it needs to: Compete more heavily with the big dogs (AT&T (NYSE:T), Verizon Wireless (NYSE: VZ), Sprint Nextel (NYSE: S) and T-Mobile) utilizing its very large nationwide wireless coverage footprint. In a sense, the company can escape public scrutiny and spending for a while as it retrenches and pours capital into its network as fast as possible to narrow the gap in the red-hot wireless service business.
The question is how fast this can happen and when Alltel Wireless will re-enter the public market (which is bound to happen). The deal is scheduled to close by the end of this year and possibly stretch out until 2008 based on how regulators handle the proposal. With 12 million customers across the country, Alltel needs to go for the jugular on service and customer buildout scale or risk becoming irrelevant, and this deal will enable that motive.
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Alltel Corp. (NYSE: AT) -- volatility Elevated; buyout expected to close in early 2008. AT, a customer-focused communications company, announced on May 21 it will be acquired by TPG Capital & Goldman Sachs Group (NYSE: GS) for $27.5 billion ($71.50 in cash). TPG & GS are expected to close on the purchase of AT in early 2008. AT is recently trading at $66.54. AT October option implied volatility of 16 is above its 9-week average of 12 according to Track Data, suggesting larger risk.
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