According to a fresh report out of CNBC's David Faber, Alltel may soon be acquired by Verizon Communications Inc. (NYSE: VZ). Faber just noted that the companies are in advanced talks to acquire the current private equity held telecom operator by TPG and GSCP, which are Texas Pacific Group and Goldman Sachs Capital Partners.
Alltel went private last year and has somewhere in the vicinity of 13 million wireless subscribers. The value of that deal was in the 427 to $27.5 billion range, and interestingly enough this new deal may not be at any or at much of a premium to that price.
If there is any company that can acquire this and not have all the credit rating issues and not run into multiple bank debt issues like private equity, then it is Verizon. There are a couple of other players like AT&T (NYSE: T) or some foreign-owned carriers that could swing it too. Read more about the full implications for the sector and which other companies might be affected by this deal at 247WallSt.com.
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.
With Sprint Nextel (NYSE: S) bleeding customers and cash lately, CEO Gary Forsee may see 2007 mark the end of his career at the telecom giant. Sprint's Q1 numbers were way below the competition, as the company's botched acquisition of Nextel in 2005 has proved disastrous for the combined company. Why? Well, Sprint management must have given Nextel subscribers the cold shoulder after the deal closed, which is too bad considering Nextel wireless subscribers brought in the highest monthly bill and were the most loyal. Well, they were before the merger anyway.
It's been rumored that Verizon Wireless (45% owned by Europe's Vodafone) was possibly interested in a deal to acquire Sprint Nextel. In the wireless telecommunications game here in the U.S., mega-mergers have been a mainstay. Verizon was eclipsed by Cingular Wireless (now AT&T (NYSE: T)) a few years ago when Cingular Wireless bought the "old" AT&T Wireless. With Sprint Nextel having a poor reputation but a huge wireless customer base of over 53 million, are things ripe for a corporate takeover or even a buyout by private equity?
Verizon Wireless uses the same technology as Sprint Nextel, so the acquisition and fold-in would be technically very easy, although many wireless licenses would have to be disposed of somehow and the duplication in equipment would be an issue. How about Alltel Wireless, the fifth-largest wireless carrier in the U.S.? Like Sprint Nextel, Alltel uses the same technology as Verizon Wireless, making it a viable takeover candidate as well.
A purchase of Sprint Nextel (or a merger) or Alltel Wireless by Verizon Wireless would again put Verizon Wireless atop AT&T as the largest wireless carrier in the U.S. -- by a huge margin. Speculation has run rampant for a little under a year that this would happen, but no action so far. Whatever the interests of private equity, the rapid combination of wireless companies in the U.S. is far from over.
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