NEW YORK/PHILADELPHIA (Reuters) - Shares in wireless carrier Alltel Corp. (AT.N) surged nearly 7 percent on Monday after it accepted a $25 billion takeover offer from TPG Capital and the buyout arm of Goldman Sachs, the largest private equity deal for the telecommunications industry.
The agreement ended months of speculation over a possible deal for Alltel, the top U.S. rural wireless provider, but questions were raised over the bid process.
Sources familiar with the situation said on Monday that Alltel accepted the takeover instead of completing an auction that had attracted at least two other teams of suitors.
First-round bids for Alltel, with around 12 million customers, were not due until June 6, sources said. As a result, Alltel accepted the offer without knowing whether its auction would draw even higher bids.
TPG Capital TPG.UL, formerly Texas Pacific Group, and GS Capital Partners will acquire Alltel for $71.50 per share in cash, the company said late Sunday. Including the assumption of debt, the deal is worth around $27.5 billion.
Some governance experts said the company may have to provide answers on the way it reached the deal.
“Alltel clearly has to explain to investors why this was the best price, and why a better price wouldn’t have been achieved through a full auction,” said Charles Elson, chairman of the Center for Corporate Governance at the University of Delaware. “To not even complete one round of bidding raises questions.”
CNBC, the cable news channel, reported Monday that Alltel proposed an earlier bid deadline due to concerns over potential financing problems, and two investor groups said they could not submit a bid in time.
Alltel spokesman Andrew Moreau declined to comment on details, but said the bidding process had been fair to all parties involved.
Reuters previously reported that Providence Equity Partners and The Blackstone Group had teamed up for a bid for Alltel. The Carlyle Group CYL.UL and Kohlberg Kravis Roberts & Co. KKR.UL were also exploring an offer, sources said Monday.
Analysts said the Alltel deal represented a respectable premium and that higher bids for the company were unlikely.
The deal value was around nine times analysts’ estimates for Alltel’s 2007 earnings, and eight times estimates for 2008, compared with an industry average of seven times earnings.
“They’ve already shopped around to all prospective buyers, and this is the best price, which I think is a good price for shareholders,” said Stanford Group analyst Michael Nelson.
Alltel shares rose $4.45 to $69.66 on the New York Stock Exchange and have gained about 20 percent since speculation over a potential buyout emerged in December.
Analysts had said Alltel could be sold for $25 billion to $30 billion, with other potential buyers including industry rivals such as Verizon Wireless, a venture of Verizon Communications Inc. (VZ.N) and Vodafone Group Plc (VOD.L); AT&T Inc. and Sprint Nextel Corp. (S.N)
National carriers AT&T (T.N) and Verizon Wireless each have over 60 million wireless subscribers.
Alltel provides services in parts of 35 states, and offers coverage across the country through roaming agreements with its competitors.
But no such strategic suitor emerged, sources said. Analysts said they do not expect a counterbid from another telecoms company, with AT&T and Verizon focused on their own wireless and video services, and Sprint struggling to improve its operations.
Alltel’s private buyers would likely seek an exit after four or five years, Stanford Group’s Nelson said. In addition to the option of taking it public again later, competitors like Verizon and Sprint may then be interested in buying the company, he said.
Alltel disclosed in an earnings conference call in February that it was reviewing strategic options. Media reports from as early as December 28 had said private equity firms were eyeing the company for its relatively low debt and stable cash flow.
Additional reporting by Michael Flaherty