Blog Post

Going Private: Alltel for $27.5 billion

logo_alltel.gifUpdated: Alltel, one of the smaller mobile carriers has decided to go private in a deal that values the company at $27.5 billion ($71.50 a share in cash), a 23% premium over Alltel’s closing price on December 29, 2006, when the rumors of the likely deal first surfaced. The price offers a premium of around 10 percent over Alltel’s closing price Friday. The $71.50 a share offer pegs the valuation of Alltel at 9.4 times 2007 earnings and 8.5 times 2008E EBITDA.

The company is being acquired by two private equity players, TPG (Texas Pacific Group) Capital and GS Capital Partners (private equity arm of Goldman Sachs). The transaction is likely to complete in the fourth quarter of 2007 or by the first quarter of 2008, and Scott Ford, Alltel’s chief executive officer, will remain in his current role.

My first reaction – the shareholders are going to demand more premium, and why isn’t Verizon getting in on the action, trying to grow its market share. Secondly, is this deal does go through, what is to stop Sprint from getting a similar offer sometime soon, which is trading at a discount (6.8 times 2008 EBITDA) but that offer would have to be massive – like over $100 billion or so. Anyway more thoughts to come on this later….

Update: Chetan Sharma emailed us and pointed out that wireless world is following the rule of three and since Verizon, Cingular and Sprint account for 75% of the total wireless market in the US, the buyout shouldn’t come as a surprise. Alltel has been looking to merge with Sprint or Verizon but both were not interested at this time.

Nevertheless, Alltel isn’t that bad a buy, and has a EV-DO Network in place. Sharma says, “My sense is that the private equity group will continue to operate the company and start offloading bits and pieces (by regions) when the timing is right for Verizon and Sprint.”

7 Responses to “Going Private: Alltel for $27.5 billion”

  1. I like alltel and T-mobile. I hope the Simple Freedom plan continues and even better gets updated, and cheaper. T-Mobile pre-pay is a great value but some areas I go have spotty signal strength.

  2. Jesse Kopelman

    Om, the idea of someone taking Sprint private is intriguing. The way I could see it going down is if Sprint kept the WiMAX and just sold the traditional wireless to the private investors. Who would get the Sprint name? The name thing would probably turn into an AT&T/AT&T Wireless boondoggle.

    Anyway, more so than Sprint, perhaps T-Mobile USA is the real contender for next to go private. Alltel and T-Mobile USA have very similar marketing strategies. Basically, Alltel is the rural T-Mobile. Now is the perfect time for DT to sell, too — before they have to spend a couple $B building out 3G using the AWS spectrum.

  3. John Thacker

    Alltel is “one of the smaller” providers, but it’s also the fifth largest, with owned-and-operated spectrum in 35 states. It concentrates on rural and small to medium sized cities, but has a presence everywhere except Maryland and points northeast and the West Coast. They’ve been steadily expanding and buying up smaller regional operators (Western Wireless, Midwest Wireless, First Wireless of Southern Illinois, et al.), and really aren’t that much smaller than T-Mobile right now. They’re closer in size in number of customers (18 million or so) to T-Mobile than they are to the sixth-largest company, US Cellular.

    Neither Spring nor Verizon were that much interested because both have low-cost shared roaming plans with Alltel (including EV-DO in Sprint’s case). Alltel uses Sprint and Verizon’s networks on the West Coast, Northeast, and big cities to provide nationwide service, and Sprint and Verizon vice versa are able to provide nationwide service in smaller cities and rural areas as a result.

  4. Jesse Kopelman

    Verizon is not interested because they don’t need Alltel’s spectrum and the price is way too high to just get the subscribers. Remember that Verizon did lots of market swaps with Alltel over the years, so the differentiated footprint is all stuff that Verizon avoided on purpose. As for Sprint, they have way too much on their plate already to be messing around with an acquisition of this size.

  5. This is a good move. If they want to compete with the big boys, they need more capital to grow. I hope whoever the CEO or president of the company won’t screw up the stockholders money.