bloggingbuyouts

Despite all the rumors, the $24.7 billion buyout of Alltel (NYSE: AT) got done. With the credit crunch and botched deals, the stock definitely showed volatility. But, the private equity folks at Texas Pacific Group and Goldman Sachs (NYSE: GS) certainly didn't lose interest in the company. The stock price on the transaction was $71.50.

No doubt, Alltel made some key strategic moves to make itself attractive to private equity sponsors. Perhaps the most important initiative was the spin-off of its wireline business in 2006. Basically, this provided more focus for the company.

To get some more perspective on the deal, I checked out the proxy disclosures. Alltel took the approach of a quicker auction – so as to minimize leaks as well as try to get a better valuation.

Alltel had its financial advisors put together a summary LBO (leverage buyout) analysis. The estimates ranged from $59.75 to $70.50. This assumed that the company could fetch 6.5x to 8x multiples on EBITDA by 2012, which would produce a return ranging from 17.5% to 22.5% per year.

All in all, this looks like a textbook example of a quality deal. Yet, there are certainly risks. After all, Alltel will need to manage a debt load of $23 billion.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

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.

I've mused on possible acquisitions of U.S. wireless carriers Sprint Nextel (NYSE: S) and Alltel Wireless (NYSE: AT) before, and the rumor mill is again heating up on Alltel as of this week. The fifth-largest wireless carrier in the U.S. may be looking for a possible private equity suitor. Buyout candidates include Blackstone Group with Providence Equity Partners, TPG Capital and the private-equity arm of Goldman Sachs Group, and Carlyle and KKR, according to a report in The Wall Street Journal today.

While the unnamed sources for all this acquisition/LBO street blabber still remain at large, it follows in the footsteps of all kinds of buyout rumblings that have involved Alltel Wireless from late 2006 to the present. According to the Journal, all three private equity consortiums have begun meeting with Alltel's management, and we're sure that if that is really happening, something's afoot. As one would expect, representatives from Alltel and all three groups could not be reached for comment. Yet.

Acquisition mania has been fueled by executive comments since February, when a conference call revealed that Alltel was weighing all strategic options. In general, that means that the company is looking to be bought and possibly merged with another like company (namely Verizon Wireless (NYSE: VZ)) or taken private (which I highly doubt). Another possible merger suitor would be Sprint Nextel, which runs a compatible wireless network and would love to fold in Alltel's customers in an effort to catch up to AT&T (NYSE: T) and Verizon. And the rumor mill keeps churning . . .

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.