Analysts mixed on possible Alltel buyout

Analysts are taking a mixed view on whether Alltel Corp. will be bought out by a rival or by private equity interests.

Back in February, Alltel President and Chief Executive Scott Ford announced the company was undertaking a "strategic review" and analysts took that to mean that Alltel was on the block. Since then, Alltel has said precious little about its intentions. It's earnings conference call last week shed no new light.

A report Wednesday in the Wall Street Journal that private equity groups were looking at joining forces to buy Alltel sent the company's share price up $1.36, or 2 percent, to $66.56 on Wednesday. Alltel refused to comment on the report, as did the equity firms.

A research note by analyst Richard Klugman of Prudential Equity Group speculates a leveraged buyout or takeover by another telecommunications company would cost too much.

"We continue to view the odds ... as less than 50-50 due to Alltel's substantial valuation as well as the capital intensity and competitive dynamics of the wireless industry," the note said.

At Citigroup, analyst Michael Rollins sees Alltel as likely changing hands.

"Bottom line, we maintain our target price of $68 based on our probability-weighted scenario analysis and continue to view the probability of some form of buyout or recapitalization at 85 percent," Rollins wrote.

Rollins sees Verizon Wireless and Sprint Nextel Corp. as possible suitors.

Alltel has streamlined in recent years, first selling its information system division in 2003 and, last year, spinning off its wireline business. That left Alltel as a pure wireless company. In its first-quarter earnings released last week, Alltel reported that income from its continuing operations increased 34 percent to $225.4 million, or 63 cents per share, from $168.6 million, or 43 cents per share, a year ago. Revenue grew 13 percent to $2.08 billion from $1.84 billion.

Alltel has seen its growth driven by its "My Circle" calling plan, which allows free calling to any 10 numbers, and the company now has more than 12 million customers, mainly in the South, West and Midwest.

The company has kept its long-term debt down _ around $2.74 billion, at present _ which executives have stressed over the years as a strong point of Alltel's balance sheet.