Alltel sale could spur more deals involving mobile-phone firms

DALLAS -- Alltel Corp.'s proposed $24.7 billion acquisition by private equity firms may lead to the sale of other mobile-phone providers that serve rural areas.

Dobson Communications Corp., Centennial Communications Corp., Rural Cellular Corp., and United States Cellular Corp. are among the candidates for a buyout, said Christopher Larsen, an analyst at Credit Suisse First Boston in New York. An acquisition of Sprint Nextel Corp., the third-largest US wireless company, is less likely, he said.

Goldman Sachs Group Inc. and TPG Inc. announced an agreement yesterday to acquire Alltel in the largest leveraged buyout of a telecommunications company. Alltel, with 12 million customers, had been evaluating a sale since February. The takeover, by spotlighting the amount of cash that mobile-phone companies can generate, may provide a model for other acquisitions.

The Alltel buyout "was unique in some regard in that they put themselves up for sale," Larsen said. "That doesn't mean somebody else couldn't come along and put themselves up for sale."

Shares of mobile-phone companies jumped on news of the Alltel deal. Sprint shares rose 61 cents, or 2.9 percent, to $21.40. Rural Cellular increased $1.02, or 3.5 percent, to $30.55, and Dobson rose 37 cents, or 3.7 percent, to $10.49

A leveraged buyout also could be possible in the telecom-equipment industry, Merrill Lynch & Co. analyst Tal Liani said. He sees networking company Avaya Inc. as a potential target.

Alltel generated $2.1 billion in cash from operations last year. The cash will help fund the debt the buyers will assume, Larsen said.

An offer for Sprint, based on Alltel's price and the premium, would need to be more than $90 billion, Larsen said. "It redefines large" and may be too big for private-equity firms, he said.

Sprint, based in Reston, Va., has lost monthly subscribers for three straight quarters. Chief executive Gary Forsee has invested in the company's wireless networks and has vowed to add customers in the current quarter.

"Sprint may be a target if they're not successful in turning around their operations," said Christopher Watts, an analyst at Atlantic Equities LLP in London.