Tuesday, May 22, 2007

Goldman bets US$25B on wireless - Stunning Alltel deal

Peter Morton, Financial Post

WASHINGTON - The private equity parade of buyouts of publicly traded companies is showing no signs of slowing with the latest deal coming yesterday with a US$24.7-billion leveraged buyout of U.S. mobile communications giant Alltel Corp.

Goldman Sachs ' private equity arm, Goldman Sachs' Group Inc., is joining forces with TPG Inc., formerly Texas Pacific Group, to offer US$71.50 a share for the Little Rock, Ark.- based mobile telephone and network company.

The stunning offer, about 10% higher than Alltel's recent closing price and the largest potential leveraged buyout of a telecommunications company, helped boost U.S. markets yesterday and pushed the Standard and Poor's 500 index to its highest level since 2000.

Even BCE Inc., which is also being wooed by private equity companies with as many as three competing bids said to be in the works, saw its shares jump about 2.3% to US$36.46.

Canadian stock markets were closed yesterday because of the holiday.

"It's a very positive outcome for investors,'' said John Hodulik, an analyst at UBS AG in New York. "It's generous. It just shows you how difficult it is for private-equity firms to find attractive investments.''

The Alltel bid followed on the news that the Chinese government plans to buy 10% or US$3- billion of the non-voting shares of Blackstone Group LP in its upcoming initial public offering.

Also, the Daily Telegraph reported on the weekend that generic soft drink maker Cott Corp. is looking to join a private equity bid for the U.S drinks unit of Cadbury Schweppes PLC, pegged to be worth about US$15.8-billion.

The bidding for Alltel, the fifth-largest wireless company in the United States, may not even be over yet. Major private equity players such as Blackstone, Providence Equity Partners, and Carlyle Group together with Kohlberg Kravis Roberts, are still said to be interested.

Alltel put itself up for grabs in February and analysts had expected its shares to fetch around US$70. It is considered attractive since it has low debts and high cash flow. Last year it generated US$2.1-billion in cash flow from operations.

More low-profile than competitors Verizon and AT&T Inc., Alltel operates mainly in rural areas and carries calls on its network for both wireless giants as well as operating its own wireless system.

Alltel, under the leadership of Scott Ford, was transformed into a wireless provider through the takeover of Western Wireless Corp. in 2005 for US$4.5-billion and then the 2006 purchase of Midwest Wireless Holdings LLC for $1.08-billion.

There appears to be no slowdown yet in private equity takeovers. So far this year, some US$392-billion of takeovers have been announced, including US$13.9-billion in the telecommunications industry.

Private equity firms try to spot underperforming publicly traded companies, buy them, clean them up and then attempt to sell them again. Among some of the more high-profile takeovers have been companies like Burger King Corp. and Continental Airlines Inc.

New York-based Goldman Sachs said last month it raised US$20-billion for its sixth leveraged- buyout fund, the industry's largest. Its investments include Aramark Corp., which runs food concession stands at baseball stadiums, and Kinder Morgan Inc., the operator of more than 60,000 kilometres of oil and natural gas pipelines.

1 comment:

Anonymous said...

Much of the original work on Los Angeles private equity fund performance comes from seminal work of Steve Kaplan and Antoinette Schoar who reported that the performance of 746 private equity funds in their sample was close to that of the S&P 500, net of fees. Subsequent work by Phalippou and Gottschalg (PG)found the performance of private equity funds was below that of public stock markets.