GS, TPG to take Alltel private for $27.5bn

TPG and Goldman have agreed to buy US wireless provider Alltel for $27.5 billion, the largest-ever private equity deal in the telecom sector.

US private equity firms TPG and GS Capital Partners have secured the largest-ever proposed buyout in the telecom sector, with their agreement to pay $27.5 billion (€20 billion) for US regional wireless carrier Alltel.

The deal ends months of speculation that the mobile phone service company would be taken private, and has reportedly surprised rival biding consortiums The Blackstone Group and Providence Equity Partners and The Carlyle Group and Kohlberg Kravis Roberts. The two other groups expected the auction to close 6 June, sources familiar with the situation told The Wall Street Journal.

Under terms of the agreement, TPG and GSCP will pay $71.50 per Alltel share, a 23 percent premium over the company’s closing share price prior to media reports of a potential deal on 29 December 2006. Financing will be provided by Goldman Sachs, Citigroup, Barclays and RBS.
 
A source told the Journal the deal’s structure includes a $4 billion equity cheque from GSCP and TPG, offset by more than $600 million in equity bridge loans from banks led by Citigroup.

Subject to shareholder and regulatory approval, as well as customary closing conditions, the transaction is expected to close in the fourth quarter of 2007 or the first quarter of 2008.

Alltel chief executive, Scott Ford, will continue to run the company, which has 12 million subscribers.

Ford released a statement likely meant to deflect possible criticism of private equity firms’ involvement in the deal.

“TPG and GSCP are long-term investors who are willing to make the investments necessary to continue to grow our wireless business in all of our markets,” Ford said.

Accusations that private equity firms strip and flip portfolio companies to turn a quick profit has lately plagued the industry’s public image and recent deals, such as the TPG-led buyout of utility company TXU.

TPG co-founder Jim Coulter and Richard Friedman, head of Goldman’s Merchant Banking Division, said their firms will help cultivate Alltel’s operations.

Merrill Lynch, Stephens and JP Morgan were Alltel’s financial advisors, and Wachtell, Lipton, Rosen & Katz was legal advisor. Citigroup and Goldman Sachs were financial advisors to TPG and GSCP; Cleary Gottlieb Steen & Hamilton was legal advisor to TPG; Weil Gotshal & Manges was legal advisor to GSCP, and Akin Gump Strauss Hauer & Feld was regulatory counsel to the buyers.

The Alltel deal is the largest-ever agreed buyout in the telecom sector, but could soon be usurped by a potential buyout of Canadian telecom firm BCE. According to reports in Canada’s Globe and Mail, a bidding war could erupt between Cerberus Capital Management, Kohlberg Kravis Roberts and a consortium of Canadian pension funds, which could result in a deal upwards of C$31 billion ($28.4 billion).

Many of the same firms interested in North American telecom companies were part of a bidding war in late 2005 for Dutch telecom company TDC. A consortium comprised of Apax Partners, Blackstone, KKR, Permira and Providence eventually forced through a €10 billion bid.