Verizon Communications Inc., seeking to challenge AT&T Inc., is in discussions to buy wireless provider Alltel Corp., according to two people familiar with the talks.
TPG Inc. and Goldman Sachs Group Inc., which took Alltel private last year in a deal valued at $27.5 billion including debt, would get a slight premium to the equity they invested in the Little Rock, Arkansas-based company, said one person, who asked not to be identified because the talks are private. Their lenders would get less than face value for the debt they still hold on their books.
A deal would make New York-based Verizon the top mobile- telephone company in the U.S., passing AT&T and adding Alltel's rural operations, which make up the country's biggest geographic network. Verizon Chief Executive Officer Ivan Seidenberg is relying on wireless as customers scrap land lines.
``All of the U.S. operators are racing to increase their exposure to wireless because it has the best growth prospects of anything in their portfolio,'' said Craig Moffett, an analyst with Sanford C. Bernstein & Co. in New York.
Verizon spokesman Bob Varettoni, TPG spokeswoman Lisa Baker, Goldman Sachs spokeswoman Andrea Raphael and Alltel spokesman Andrew Moreau declined to comment.
Alltel's 7 percent notes due in 2016 soared 17.3 cents to 95.75 cents on the dollar, the highest in more than a year, for a yield of 7.74 percent or 376 basis points more than similar maturity Treasuries, according to Trace, the Financial Industry Regulatory Authority's bond-pricing service. On May 28, the debt yielded 11.2 percent, or 722 basis points more than Treasuries.
11 Months
Verizon fell 38 cents to $36.98 at 4 p.m. in New York Stock Exchange composite trading. The shares lost 15 percent this year, more than the 7.4 percent drop at AT&T.
TPG, formerly Texas Pacific Group, and Goldman Sachs's buyout unit agreed in May 2007 to acquire Alltel in the biggest leveraged buyout in the telecommunications industry. Since then, Alltel has picked up users, closing last quarter with more than 13 million customers.
Alltel subscribers are mainly in rural areas and it carries calls for customers of AT&T and Verizon where they lack coverage, leading to speculation when the buyout was announced that a bigger rival would eventually purchase the company.
Ford's Efforts
Christopher King at Stifel Nicolaus & Co. said today a purchase by Verizon, which co-owns the wireless business with Vodafone Group Plc, could lower expenses by as much as $1 billion a year by eliminating roaming charges and duplicate transmitters.
Before the buyout, CEO Scott Ford spun off Alltel's landline unit and built the wireless business with the $4.5 billion purchase of Western Wireless Corp. in 2005 and Midwest Wireless Holdings LLC for $1.08 billion in 2006.
Verizon's Seidenberg also has emphasized wireless in the face of competition from cable companies such as Comcast Corp. Verizon added 1.5 million mobile users last quarter, beating the 1.3 million new users at AT&T.
Verizon ended the period with 67.2 million total wireless customers. AT&T had 71.4 million.
TPG, based in Fort Worth, Texas, was founded in 1992 by David Bonderman, James Coulter and Bill Price. The firm teamed up with KKR last year in the $32 billion acquisition of Texas power producer TXU Corp., the biggest-ever LBO.
TPG's Action
TPG has been among the most active private-equity firms this year, and Coulter told an audience in Boca Raton, Florida, this morning that his firm had done more deals this year than in the same time in 2007.
The firm led a $7 billion minority investment in Washington Mutual Inc., the largest U.S. savings and loan and also bought a 23 percent stake in Bradford & Bingley Plc, the U.K.'s largest lender to landlords, for 179 million pounds ($353 million).
``We've totally rotated from an environment of cheap debt to a market dominated by transformational buyouts and off the beaten path investments,'' he said at the Super Return U.S. conference.
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