$28.1b Places Verizon-Alltel deal atop list.

2008 WAS A TERRIBLE YEAR for mergers and acquisitions--deals were down by more than a third around the world. In Arkansas, however, there were as many deals last year as there were in 2007.

While the 2007 and the 2008 lists compiled by Arkansas Business each contains 75 deals, this year's list shows 57 deals with a known value of $58.3 billion, while the 2007 list recorded 39 deals with a known value of $41.3 billion.

Once again, like last year, there's no question about 2008's biggest deal. The sale of Alltel Corp. to Verizon Wireless for $28.1 billion was the biggest deal in Arkansas history and the sixth-largest deal in the nation. And the purchase of Alltel by TPG Capital and GS Capital Partners the year before for $27.5 billion managed to skew both lists because of the enormous size of those transactions.

Nothing else even came close to the size of the Alltel acquisition, but there were eight more billion-dollar deals last year that involved Arkansas companies or companies that have facilities in the state.

Marshall McKissack, managing director of mergers and acquisitions at Stephens Inc. of Little Rock, blamed the lack of available credit for the general downturn in M&A activity. And deals that will take place this year will continue to be driven by credit availability, he said.

While the first half of 2008 was a seller's market, McKissack forecasts a buyer's market ahead. "Sellers still have value expectations that need to come in line and are reflective of reality in today's economy," he said.

There will be deals this year. Some will be driven by necessity, McKissack said, as companies look at their operations and see that A plus B is better than A and B separately.

And more hostile M&A activity could occur if a company has the capital. Private equity buyers may look to their own portfolios of companies and put capital into them or invest with a strategic partner or become a minor partner rather than take over a target.

Verizon Wireless actually paid $5.9 billion to buy Alltel, but it also took on $22.2 billion in Alltel debt.

The deal makes Verizon the nation's top wireless carrier in terms of subscribers--it now has 83.7 million total subscribers after picking up 12.9 million from Alltel. However, Verizon will have to divest 2.1 million subscribers that are in territories that overlap as a condition of federal approval.

Although executive-level employees at Alltel were shown the door when the deal was finalized earlier this month, Verizon CEO Lowell McAdam said it would take a year to assess which jobs need to be cut or kept. Eventually, some 2,500 workers at what was Alltel's Little Rock headquarters could be looking for new employment.

Timber Sector Sees Change

The second-largest deal was the purchase by International Paper Co. of the containerboard packaging and recycling business of Weyerhaeuser Co. for $6.1 billion. That transaction included packaging plants at Fort Smith and Russellville.

In another large deal in the forest products industry, Potlatch Corp. of Spokane, Wash., one of the state's largest landowners, spun off its pulp-based businesses. Included in the creation of Clearwater Paper Corp. was the Cypress Bend pulp and paperboard mill at McGehee, which employs 311 workers. Potlatch retained the lumber mill at Warren, which employs 177 workers, and another 17 workers in its forest resource unit. Potlatch also retained its timberland, but sold about 24,800 acres near Prescott last week to an affiliate of the RMK Timberland Group, a division of Regions Bank, for about $43.3 million, leaving Potlatch with about 439,000 acres of timberland in the state.

Wal-Mart Stores Inc., which has cut back on its domestic expansion plans, announced in December its plan to buy Distribucion & Servicio (D&S), a grocery chain based in Santiago, Chile, for $2.8 billion. The world's largest retailer sees its biggest growth potential in international sales.

BP America's purchase of Chesapeake Energy Corp.'s assets in the Fayetteville Shale Play came in at $1.9 billion.

Economic development in central Arkansas continued at a healthy pace in 2008, despite the recession. The region saw several manufacturers announce plans for new plants.

Investment-wise, the biggest announcement in central Arkansas was by Man Industries Ltd. of Mumbai, India, which is building a $100 million plant at the Port of Little Rock that will employ 300 workers to produce steel pipes for use in the oil and gas industry

From an employee standpoint, however, the biggest announcement was Hewlett-Packard, which said it would employ 1,200 at its new $28 million IT facility at Conway.

And Arkansas is on its way to becoming the wind-blade capital of America. After LM Glasfiber's decision to open a plant at Little Rock in 2007, the industry seems to have found a home in Arkansas.

In October, two more wind turbine makers announced plans. Polymarin Composites, a subsidiary of Emergya Wind Technologies of The Netherlands, said it would invest $16 million and eventually employ 630 workers making high-performance rotor blades for the wind industry. In addition, Wind Water Technology, a supplier to EWT, is putting up another $4 million at the same site that will employ 200.

Also in October, Nordex USA Inc. equaled or exceeded the Man Industries announcement when it said it would locate a wind turbine manufacturing plant at Jonesboro, investing about $100 million and eventually employing 700 workers at the facility.

To top it off, Gov. Mike Beebe has hinted the state could land another wind blade maker.

The Little Rock Regional Chamber of Commerce said seven new locations and five expansions in central Arkansas amounted to $324.9 million, as well as 3,209 new jobs and $115.7 million in new annual payroll.

The Bigger Scene

Global M&A volume of $2.89 trillion last year was the lowest since 2005, according to Thomson Reuters, as a lack of available credit, plunging stock markets and a worldwide financial crisis undermined companies' ability to make acquisitions.

According to Dealogic, a record 1,309 M&A deals, valued at $911 billion, were canceled in 2008 because of the dried-up credit market, much of that occurring in the last quarter of the year, when deals almost ground to a halt.

The obvious question is what about 2009--will there be more and bigger deals or fewer? The experts don't expect deal-making to pick up until the second half of the year and even then see total deals declining by nearly a third from 2008 transactions.

While numerous companies would love to make acquisitions, they'll have to have the cash to finance the deal unless the credit crunch eases. And some with that cash will find it a good time to buy during the down market.

As tough as it has been for the larger deals, the global middle-market M&A--deals valued at up to $500 million--fared somewhat better last year. They were still down, but by only 22 percent to $716.5 billion, according to Thomson Reuters.

By John Henry

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Largest M&A Deals of 2008

     TARGET COMPANY        BUYER              DEAL VALUE

 1 Philip Morris Int'l   Shareholders       $113.0 billion
 2 Anheuser-Busch Cos.   InBev NV            $60.4 billion
 3 Merrill Lynch & Co.   Bank of America     $48.8 billion
 4 Genentech Inc.        Roche Holdings      $43.7 billion
 5 Time Warner Cable     Shareholders        $42.1 billion
 6 Alltel Corp.          Verizon Wireless    $28.1 billion
 7 Alcon Inc.            Novartis AG         $27.7 billion
 8 RBS                   HM Treasury         $26.1 billion
 9 HBOS Plc              Lloyds TSB          $25.4 billion
10 Wm Wrigley Jr. Co.    Mars Inc.           $23.2 billion

Source: Thomson Reuters