Goldman, TPG agree to buy Alltel for $24.7 bn in biggest phone buyout

Goldman, TPG agree to buy Alltel for $24.7 bn in biggest phone buyout
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First Published: Mon, May 21 2007. 04 58 PM IST
Updated: Mon, May 21 2007. 04 58 PM IST
By Amy Thomson and Adam Satariano, Bloomberg
New York: Goldman Sachs Group Inc. teamed up with TPG Inc. to buy Alltel Corp. for about $24.7 billion in the largest leveraged buyout of a telecommunications company.
Investors will get $71.50 a share, the mobile-phone company said in a statement on 20 May. The offer is 9.6% more than Little Rock, Arkansas-based Alltel’s closing share price on 18 May and exceeds the $70 a share expected by Michael Nelson, an analyst at Stanford Group. Including debt, the bid values Alltel at $27.5 billion.
TPG, formerly Texas Pacific Group, and Goldman Sachs’s buyout unit will gain control of the fifth-biggest US wireless company and the country’s largest geographic network. The deal tops the takeover of Denmark’s TDC A/S by a group including Kohlberg Kravis Roberts & Co. and Blackstone Group LP for $15.3 billion including debt in January 2006.
The buyers “are willing to make the investments necessary to continue to grow our wireless business in all of our markets,” Alltel Chief Executive Officer Scott Ford, who began the sale process in February, said in the statement. He will remain at Alltel in his current post.
Alltel shares were indicated to trade at the equivalent of $70.90 at 9:05 a.m. in Germany, an 8.7 % increase from the May 18 closing price on the New York Stock Exchange. The stock rose to its highest level in more than seven years earlier this month after the Wall Street Journal first reported that Alltel was in talks with groups of investors.
Wireless Investments
TPG, based in Fort Worth, Texas, is the buyout firm founded in 1992 by David Bonderman, James Coulter and Bill Price. Goldman Sachs Capital Partners is the buyout unit of New York- based Goldman Sachs, the world’s biggest securities firm by market value.
Other private-equity groups interested in Alltel included Blackstone together with Providence Equity Partners, and Carlyle Group together with Kohlberg Kravis Roberts, according to people with knowledge of the discussions.
Low debt levels and high cash flow made Alltel an attractive target for private equity investors, Stanford Group’s Nelson said before the announcement. TPG and Goldman are paying about 25 times Alltel’s forecast net income for 2007, according to data compiled by Bloomberg.
Alltel operates mainly in rural areas and carries calls for customers of AT&T Inc. and Verizon Wireless, the two biggest U.S. mobile-phone companies, where they lack coverage. That led some analysts to speculate they may also bid for Alltel. Nelson, who is based in New York, had estimated Alltel could get as much as $79 a share from another phone company.
The company, founded in 1943, began offering wireless service in 1985 and last year spun off its remaining fixed-line phone business to create Windstream Corp.
Rising Sales
While the loss of Windstream’s customers caused Alltel to report lower profit in the past three quarters, sales from the remaining business rose 13 % last quarter to $2.08 billion. The company’s “My Circle” program, which lets customers make unlimited calls to five other phone numbers, helped fuel growth.
Private-equity firms have announced $392 billion of takeovers this year, including $13.9 billion in the telecommunications industry.
Advisers, Financing
Merrill Lynch & Co., Stephens Inc. and JP Morgan Securities Inc. advised Alltel on the transaction, and Citigroup Inc. and Goldman Sachs advised TPG and Goldman Sachs Capital Partners. Goldman, Citigroup Inc., Barclays Plc and Royal Bank of Scotland Group Plc will provide financing for the purchase.
TPG raised $15 billion last year and is a partner with KKR in the $44 billion acquisition of Texas power producer TXU Corp., the biggest-ever leveraged buyout. It has invested in about 75 companies, including Burger King Corp. and Continental Airlines Inc.
Goldman Sachs said last month it raised $20 billion for its sixth leveraged-buyout fund, the industry’s largest ever. Its investments include Aramark Corp., which runs food concession stands at baseball stadiums, and Kinder Morgan Inc., the operator of more than 41,000 miles of oil and gas pipelines.
--With reporting by Crayton Harrison in Dallas and Jason Kelly in Atlanta. Editor: Sondag (lae/phl/zls)
To contact the reporters on this story: Amy Thomson in at +1-212-617-6579 or athomson6@bloomberg.net; Adam Satariano in San Francisco at +1-415-912-2974 or asatariano1@bloomberg.net
To contact the editors responsible for this story: Cesca Antonelli at +1-415-732-3127 or fantonelli@bloomberg.net; Larry Edelman at +1-617-210-4621 or ledelman3@bloomberg.net.
-0- May/21/2007 10:06 GMT
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First Published: Mon, May 21 2007. 04 58 PM IST
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