Goldman Sachs Group-TPG and GS Capital buy Alltel

Last night TPG Capital and the private equity arm of Goldman Sachs, GS Capital Partners agreed to buy Alltel for $27.5 billion, the largest buyout of a telecom company. Investors will get $71.50 per share, about 9.6 percent more than Alltel's closing share price on Friday.

The mobile operator community should now be looking over its shoulder at Alltel. Leveraged buyouts are a great way for companies to aggressively drive margins without enduring the pressure of pleasing public markets. Once an acquisition target, Alltel suddenly becomes a dangerous operator capable of making the investments needed to stand with its nationwide competitors. The beauty of these types of leveraged buyouts is that these groups have the ability to reshape the business in a manner that prior management and relationships could not. GSCP and TPG have the financial capability to buy other companies--carriers or other supporting companies--that will complement Alltel's business, while adding to the core capabilities. The net result can be a high-value company capable of some big acquisitions itself.

CEO Scott Ford, who will remain CEO after the acquisition, said in a statement that TPG and Goldman Sachs are long-term investors willing to make the investments necessary to grow the business. Goldman Sachs said last month it raised $20 billion for its sixth leveraged-buyout fund, the industry's largest ever. It has money to burn. TPG is in a similar position as it has more than $30 billion in assets under its management.

And that means the well-funded Alltel could also come to the 700 MHz auction table willing to drive up the price of this highly prized spectrum to compete on a national level. Before the buyout, Alltel risked having the likes of Verizon Wireless, the rumored suitor for the last year, buying 700 MHz spectrum overlapping Alltel's markets, giving Verizon little reason to buy Alltel because it could overbuild the operator with more efficient spectrum.

Now we could very well see Alltel becoming a thorn in the side of the operators who passed on the Little Rock, AR-based company. -Lynnette