Monday, December 18, 2006

Calls of Note Part 5

- UBS notes that while they remain cautious on its fundamental outlook, they increasingly believe Alltel (NYSE:AT) could be an acquisition candidate in early 2007. Speaking at firm's Media/Comm conference, CFO Sharilyn Gassaway suggested that mgmt is talking with interested parties and prefers an auction process to drive value rather than a one-off transaction with private equity.

UBS notes they have recently seen increased activity in fixed income and derivatives markets, with higher interest for short-term calls and 5-year CDS spread widening 32% in the last week. Meanwhile, Alltel shares are up 8% since lows after reporting a weak 3Q.

Management recently suggested that a continued shift to family plans and prepaid products will put pressure on voice ARPU trends. In 3Q, Alltel's retail voice ARPU had declined by 6% annually (stripping out the effects of data and ETC revenues), up from a 2% decline in 2Q. They also expect increased retention efforts to drive CPGA higher.

Despite fundamental issues facing the company, the firm is raising their 12-month price to $61 from $57 based on the reduction in our public market discount to 10% from 20% given increased expectations for a deal in 1H07.

Notablecalls: Just in case you care.

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