Private Equity Firm Agrees to $25B Buyout of Alltel

TPG Capital and GS Capital Partners agreed on Friday to buy Alltel wireless for $25 billion dollars.

Alltell becomes the latest publicly held company to fall into the arms of a private equity firm.

With Alltell's stock closing at $65.35 on Friday, TPG and GS Capital agreed to buy this corporate giant's stock for $71.50 in cash.

TPG was formerly know as Texas Pacific Group while GS Capital Partners is better known as the buyout arm of Goldman Sachs.

It is a common practice for private equity firms to purchase companies and then sell them a few years later. Private equity firms usually borrow money to make such investments. More private equity firms have been making these purchases because of a robust debt market that has fueled more leveraged buyouts in the last couple of years.

Alltell joins a growing list of companies that includes Chrysler Group (see my 051507 in the news article), contact lens company Bausch & Lomb, and credit card processor Alliance Data as companies agreeing to be bought by private equity firms.

Analysts have speculated Alltell would be an attractive target for a buyout because Alltell shares sell for about 9 times its cash-flow. Buyout companies have been willing to pay double-digits for companies because deals have been harder and harder to come buy. These buyout companies usually seek companies with strong cash flows because this helps pay down the debt borrowed for the deal.

Alltel is the top rural U.S. wireless provider, and speculation surfaced in February that private equity investment was starting to heat-up because of a conference call indicating Alltell was looking to review their strategic options.

Several teams of private equity suitors emerged earlier this month. Amid a wave of mergers and acquisitions in telecoms, Alltel Chief Executive Scott Ford had been eyeing a sale since the Little Rock, Arkansas-based company spun off its fixed-line arm last year.

Analysts predicated Alltell was hoping some kind of purchase agreement would go through in April or May because this would be before the governments planned sale of wireless airwaves. This government sale is expected to happen around August.

Once rival companies register to take place in this government auction of wireless airwaves, these companies are barred from talking to each other about mergers and acquisitions. And this rule is what led Alltell into finalizing a deal before the August air-wave sale.

Read more about Alltell at CNNMoney