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.”

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