Alltel sale could fetch $30 billion

The top rural U.S. wireless provider fueled merger speculation during its earnings call Tuesday.

NEW YORK/PHILADELPHIA (Reuters) -- Alltel Corp. could fetch a price tag of $25 billion to $31 billion from private equity firms or other U.S. mobile service providers looking to expand in rural markets, analysts said Tuesday.

Alltel, the top rural U.S. wireless provider, fueled merger speculation when it said during an earnings conference call Tuesday that it was reviewing its strategic options. Analysts said a sale agreement could happen as early as April.

Its shares rose 3.3 percent to $62.40 after the comments, also spurred by better-than-expected quarterly results.

With most Americans already owning cell phones, Alltel is an attractive target for other telecoms carriers looking for acquisitions to drive growth, analysts said.

"Since we're at such high penetration rates in the U.S. it's going to be a lot easier to grow going forward by acquisition than by stealing from other carriers," said Janco Group analyst Donna Jaegers.

Some analysts said Verizon Communications (Charts) was the most likely company to bid for Alltel (Charts) as Verizon Wireless uses the same CDMA network technology, making any merger easier. Verizon Wireless has the second-biggest U.S. customer base but leads in terms of revenue.

Alltel, with 12 million customers, could also attract bids from AT&T's (Charts) Cingular Wireless, Sprint Nextel (Charts) or Deutsche Telekom AG's T-Mobile USA, analysts said.

Jaegers said Alltel could sell to a rival for as much as $67 a share, or a total of $25 billion, assuming a valuation of about 9 times estimated earnings before interest, tax, depreciation and amortization (EBITDA).

She said her valuation was based on Alltel's own $1 billion purchase of smaller rival Midwest Wireless last year, which was the most recent wireless merger deal.

Bidding war?

Amid a wave of mergers and acquisitions in telecoms, Alltel Chief Executive Scott Ford has been eyeing a sale since the Little Rock, Arkansas-based company spun off its fixed-line arm last year, according to a source familiar with the situation.

Alltel has approached AT&T, Verizon and Sprint, and "made the rounds" among some private equity firms, but no one has jumped to buy the company yet, the source said.

Another person familiar with the matter said Alltel started its strategic review because it had been casually approached by potential suitors, but that no decision has been made yet.

Michael Nelson, an analyst at Stanford Group, said private equity firms would like Alltel's low debt and strong earnings outlook and could bid as much as $69 per share. Telecoms rivals could pay as much as $83 per share, implying price tags of $25.75 billion to $30.9 billion, he said.

Alltel ended 2006 with $2.7 billion in long-term debt.

Nelson said private equity firms, which have bought a series of technology companies last year, were more likely acquirers than Alltel's wireless rivals.

"I would say Verizon's the most likely strategic buyer," he said. But since Verizon has grown nicely on its own, "I still don't believe Verizon is a willing buyer of the asset unless their hand is forced and they risk losing it," Nelson added.

Stifel Nicolaus analyst Chris King said if a bidding war emerged, "you could make a case for" a price tag of about $29.8 billion, which would be 10 times his target for 2007 EBITDA.

Analysts said Alltel would likely aim for a sale agreement by April or May, ahead of a U.S. government sale of wireless airwaves that could take place as early as August. Rival bidders are barred from talking to each other once they register to take part in the auction.

Jaegers said Alltel could also be a good fit for regional fixed-line service provider Qwest Communications (Charts), which does not have a wireless network.

But Qwest, one of the smallest U.S. regional home phone providers, may not be the preferred choice as Alltel could wring more savings from hooking up with a wireless rival. As a bigger mobile player, Alltel would also be able to demand deeper discounts from handset makers.

Analysts said No. 3 U.S. wireless provider Sprint Nextel could be a bidder as it also uses CDMA technology, but they note that Sprint's financial results have flagged in recent quarters as it struggled to integrate its Nextel purchase.

Cingular, the U.S. market leader by subscribers, has been on an acquisition spree in recent years. Alltel runs only part of its network on GSM, the network technology used by Cingular and No. 4 rival T-Mobile USA.

Representatives for the companies in this story declined to comment or were not immediately available for comment.

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