Private Equity Firms Snap up Alltel, in Telecom’s Biggest Leveraged Buyout
A $27.5 billion TPG Capital and GS Capital Partners buy of Alltel likely will be embraced by the Justice Dept. and FCC, especially since it creates a strong independent carrier positioned to compete with AT&T and Verizon Wireless, lawyers and analysts said Mon. The acquisition is the largest leveraged buyout (LBO) in the U.S. telecom industry. The companies hope to finalize the deal by Q1 2008.
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“I don’t see any issues,” a wireless industry attorney said: “If anything, it’s positive because of how they'll have the deep pockets to buy spectrum in the 700 MHz auction. From a public policy viewpoint, policymakers always like the entry of another carrier on the scene. There’s nothing horizontal. There’s nothing vertical. It’s totally neutral. It doesn’t change anything for anybody.”
Rebecca Arbogast, analyst at Stifel Nicolaus, expects the merger to face few regulatory issues, she told us. “There is always some possibility that another suitor could come forward, but I think that is unlikely,” she said: “One of the attractions of the private equity deal is that it presents no significant regulatory hurdle.”
A wireless attorney noted that LBOs have been much more common in media -- for example, the LBO of Univision by a team led by Madison Dearborn Partners and including TPG, and of Clear Channel by Thomas H. Lee Partners and Bain Capital. “Media companies were seen as undervalued and there has been more play on that side of the fence,” the attorney said.
Rather than historic issues involving market power, the likelier focus of regulators will be the firms’ international holdings, the source said: “There could be different types of issues depending on what these firms look like.”
Bank of America Equity Research said in a note Mon. the buyout likely won’t increase odds of similar deals in telecom. “We see the Alltel deal as one crafted under unique and favorable circumstances; an active and motivated seller, very low debt, stable operations, and a visible exit strategy,” the firm said. Sprint Nextel is an LBO candidate, but a deal would present more complications in terms of “size, stability and exit strategy,” Bank of America said.
Bank of America said many policy issues remain unclear. “We believe had Alltel chosen to not put itself up for bid, it would have competed aggressively for spectrum in the upcoming 700 MHz auction, perhaps looking to establish itself as a more formidable national competitor,” the firm said: “It is also unclear what if any ramifications the announced merger will have on Alltel’s roaming agreements.”
Talk of an Alltel buyout surfaced late last year. TPG, formal known as Texas Pacific Group, has been active since 1993 when the newly formed firm made headlines with a $65 million investment in bankrupt Continental Airlines. GS Capital is the buyout arm of Goldman Sachs. Other big private equity firms, including the Blackstone Group, Providence Equity Partners, the Carlyle Group and Kohlberg Kravis Roberts, were rumored to be angling for Alltel.
The purchase price makes the buy one of the largest wireless mergers ever, though the price tag is less than the $41 billion Cingular paid in 2004 for AT&T Wireless or Sprint’s $36 billion purchase of Nextel, which closed a year later. The buyers get a carrier with 12 million wireless customers, mainly in rural and small-town America, and an increasingly national profile. The buyout announcement comes within a year of Alltel’s spinoff of its landline operations to form Windstream, helping Alltel shed $5 billion in debt and emerge as a more attractive target.