The Telecom Small Fry That Ate the Boonies

Tiny Alltel has been gobbling up rural phone companies

Alltel Corp. (AT ) is a pipsqueak with a giant's appetite. With $7.5 billion in revenue, the Little Rock-based phone company is small by the gargantuan standards of the telecom industry. But its father-and-son management team has spent $12 billion over the past three years gobbling up scores of competitors. Now, Alltel is trying for its biggest meal yet, making a $6.1 billion offer for CenturyTel Inc. (CTL ), a rural carrier in Monroe, La. That comes out to $43 a share, a 40% premium over the trading price.

So far CenturyTel has rejected the Aug. 14 bid, convinced that its core local phone business is strong. It figures that selling off a struggling wireless unit is its best strategy. But Alltel wants the whole company. And if it prevails, Alltel will transform itself into an industry player--with a very particular niche. Alltel hopes to dominate small-town America, with 12 million customers and $10 billion in revenue. In the emerging rural wireless market, it would have three times more subscribers than its closest competitor, U.S. Cellular (USM ). And its local-service reach would extend from Alltel's strongholds across the South through to CenturyTel's networks in Indiana, Tennessee, and Michigan.

Other rural carriers are understandably wary of such a giant in their midst, and so are their big-city cousins. Huge wireless carriers like Verizon Communications (VZ ) and Cingular Wireless had expected that small towns would be easy pickings to fill out their national service footprints. An Alltel-CenturyTel merger would make sauntering into the boonies a lot more difficult. "It's smart of Alltel to make a big play now while the Bells are still just looking at the rural wireless market," says Nancy Kaplan, vice-president at industry consultant Adventis Corp.

Alltel's smarts have been in evidence for some time. The company has been regularly bettering its position while the industry as a whole deteriorated. Under Chairman Joe T. Ford's 14-year tenure, Alltel has made more than 250 acquisitions. It has averaged an 18% return on equity over the past four years and has $3 billion in aggregate cash flow.

Kaplan and other analysts believe Alltel could eventually become an irresistible target for a wireless giant looking for quick entry into rural markets. But Alltel President Scott T. Ford, the chairman's son, insists he plans to keep his company independent--up to a point. "If someone walked in with an offer that was a 40% premium, I'd seal the exits," says Ford, only half-joking.

His reluctance to sell out is understandable: For the Fords, Alltel is as much family as business. The senior Ford married the founder's daughter, then entered the business in 1959. Scott joined his father in 1996. While Alltel is no longer a small carrier, Joe still calls customers himself to make sure complaints are answered. "Boy, I'll tell you, it really shocks some to get a call from me," he says.

"LYNCHING." Such folksy charm isn't working with CenturyTel, and its defenses are formidable. By Louisiana law, the company doesn't have to hold another shareholder meeting until December, 2002, and its employees control nearly 30% of the stock. "Winning control of CenturyTel isn't going to be easy," says Craig Nedbalski, managing director of Victory Capital Management, which owns shares in both companies.

Still, Nedbalski and other investors are rooting for Alltel, given that Century- Tel has been going sideways lately. Revenues from its wireless business, responsible for 21% of its total, fell 1.3% in the second quarter. CenturyTel even approached Alltel in July, seeking to gauge its interest in buying the wireless unit. Instead, Alltel made a private offer for the whole company, which was promptly rejected. "You're looking at a lynching of management if they don't do something to raise the value of CenturyTel's stock," says one CenturyTel institutional investor. Such sentiments are sure to keep Alltel sharpening its knives.

By Charles Haddad in Atlanta

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