Alltel investors lead charmed life

Arkansas Business, June 9, 2008

INVESTORS IN ALLTEL CORP. MUST BE living right.

While leveraged buyout deals were dropping like flies in the last half of 2007--including the planned sale of Little Rock's own Acxiom Corp.--the sale of Alltel to TPG Capital and Goldman Sachs Capital Partners sailed through. Alltel shareholders realized a 22.6 percent premium on the price of the shares when the sale rumors began.

Less than seven months later, a deal was struck to sell Alltel to Verizon, making it the largest wireless telecommunications company in the country. This time, the return for TPG, Goldman Sachs and the Alltel managers who reinvested in the now private company will be even greater

"They're going to make about 30 percent return on their equity against a market that's down 25 or 30 percent in the same timeframe, so they have materially outperformed the market," Alltel CEO Scott Ford said.

And it isn't because Alltel was so well run, although its financials certainly support that idea and Ford was bragging on them at a news conference last week. Instead, as he acknowledged, this turn of events is a direct result of the same credit crunch that doomed the Acxiom deal and so many others--but also created a buying opportunity for Verizon:

[T]he banks, because of the credit crisis that didn't have anything to do with our debt, the banks couldn't move their paper. Because they couldn't move their paper, the debt traded at a discount.

"That ... not only allowed [Verizon] the opportunity to come in the buy some of the debt at a discount, it also puts liquidity back into the banking system. So I think this is one of those things where federal regulators, both at the [Federal Communication Commission] and the [Department of Justice], and the Fed will all look at this and say 'Thank goodness, this is a great Corporate America move for the financial system.' ... It's a good thing all around."

Ford's admiration for Verizon's business savvy was evident as he spoke. It was no surprise that Verizon would be interested in owning Alltel, which operates on the same CDMA wireless technology and has little geographic overlap. But the timing of its pounce surprised even a mergers and acquisition veteran like Ford.

"No one foresaw the magnitude of the credit crisis seven or eight months ago, and I don't think anybody foresaw that [Verizon] would move this quickly to come pick the asset up. But they did. Hat's off to them. That's the great thing about capitalism in America."

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The greater good of capitalism in America may be of little comfort to well-paid Alltel employees in Arkansas, who are the most likely to lose their jobs. Ford said Alltel's 500-job call center is likely to be safe, and Little Rock might become a regional headquarters for Verizon. But a regional headquarters "is not like a corporate headquarters. It will not be like that."

The most vulnerable jobs are the "classic corporate staff functions," which he said were a few hundred jobs. They include, however, the highest-paid positions.

"For most Alltel employees, particularly those outside of Little Rock, this will be business as usual. They'll get a blue shirt. Some Thursday or Friday they'll be handed a new set of shirts and they'll come to work in red shirt. And their lives won't change."

If Verizon Communication Inc.'s track record for buyouts is any indication of how Little Rock jobs will be affected, central Arkansans may be just fine.

When Verizon bought MCI Inc. in an $8.5 billion deal that closed in 2006, infrastructure at the company's corporate headquarters in Ashburn, Va., remained fairly constant, Tony Howard, president of the Loudoun County Chamber of Commerce, said.

The location harbored an infrastructure similar to the size of Alltel's corporate headquarters of about 3,500 employees in 2005, according to a Washington Post article.

"I don't recall there being any significant reduction in work force or investments," Howard said. "And as I understand Verizon has continued to pour resources into the assets that they have purchased here. Not the least of which is that they have taken the large network operation center that MCI had in Ashburn and have put a lot of resources and effort into developing a division to market to the federal government.

"And so if anything I think they've actually increased their resources here," he added.

On the web

Go to ArkansasBusiness.com/Alltel-Verizon for our latest and complete coverage, including breaking news and video of Scott Ford's news conference.

By Arkansas Business Staff

gmoritz@abpg.com