NEVER BLINK

Scott Ford competes in team roping rodeos. He can lasso a running steer and stop it in its tracks in about six seconds. But the 60 seconds before the gate opens is the most intense. "You can't hear anything. You block everything out. All you can feel is the horse breathing. You're tuned into the moment. Once you're underway, it's like throwing a ball—you don't worry about it after it starts."

Right now Ford, the chief operating officer of Alltel, is suspended in another protracted moment as he attempts to acquire one of his company's chief rivals, CenturyTel. If the takeover is successful, it will be the crowning achievement in Alltel's quest to become the dominant carrier in rural markets nationwide. It's the biggest, most contentious deal of Scott Ford's career. The gate is about to open.

In his 12th-floor office in the headquarters of Alltel, Chief Operating Officer Scott Ford detailed the art of cattle roping. “There's a header and a heeler,” he said. “The header nods. The gate opens. The header runs down the left side, ropes the steer's horns and pulls referee drops the flag.”

Competing in the Eastern Missouri Classic rodeo in St. Louis last spring, Ford qualified for the national team-roping finals, where $100,000 in prize money is at stake. That's when “the pressure of the money, the competitive sense and all that” really makes steer roping exciting, he said.

Ford's office hovers above his hometown of Little Rock, and the office window captures what looks like the entire city in a single frame. To the east, the Arkansas River flows through Alltel's backyard, banked on the far side by a massive cascade of auburn stone.

AUGUST 20, 2001 SPECIAL REPORT Alltel jockeys for dominance  Ford: We could run the table on consolidation of rural independents by Glenn Bischoff

In this town of roughly 180,000 people, Alltel looms as large as those red cliffs — the downtown arena bears its name, and on billboards above the highway, images of singer and spokesperson Faith Hill promote the company's services.

Alltel is poised to wield this kind of dominance on a national scale. A single transaction could set it in motion. And all Ford can do is wait for it.

Alltel's ambitions to dominate rural America are tied right now to its $9-billion bid to buy CenturyTel and, in doing so, become the largest incumbent carrier this side of Sprint. After that, rounding up other rural markets—and rural carriers—would be like, well, throwing a ball.

WHAT'S AT STAKE
WIRELINE
2001 estimated customers (in millions)		2001 estimated revenues (in billions)
Alltel	2.6	Alltel	$1.8
CenturyTel	1.8	CenturyTel	$1.5
WIRELESS
2001 estimated customers* (in millions)		2001 estimated revenues* (in billions)
Alltel	6.8	Alltel	$3.9
CenturyTel	0.8	CenturyTel	$0.4
U.S. Cellular	3.5	U.S. Cellular	$1.9
Western Wireless**	1.2	Western Wireless**	$0.9
Dobson Communications***	1.1	Dobson Communications***	$0.9
Rural Cellular	0.7	Rural Cellular	$0.5
* Based on Wall Street estimates ** Domestic operations only *** Includes proportionate interest in American Cellular Source: Alltel

The wait for the merger is not as brief as the pause before a rodeo round, “but it's no less intense,” Ford said. There's the same money and pressure and competitive sense — only the stakes are much higher.

It's been weeks since CenturyTel issued its second public refusal of Alltel's merger proposal. (“Has it just been twice?” asked Ford. “Feels like a hundred times.”) But when asked when Alltel got its first “definitive no,” Ford said, “We're still waiting.”

The maneuver is called a bear hug. Four days after Monroe, La.-based CenturyTel privately refused Alltel's initial offer, Alltel went public, detailing its plan to the media in hopes that CenturyTel shareholders would pressure board members to negotiate.

At that point, it was Alltel's only weapon. CenturyTel's corporate defenses made a hostile takeover virtually impossible: Its staggered board could take three years to unseat, and more than 28% of the company's voting power rests in the hands of long-term shareholders and employees.

After Ford exchanged somewhat caustic open letters with CenturyTel President and CEO Glen Post (the gist of which was, “Are you sure you don't want to reconsider?” “Yes.” “Are you sure you're sure?” “YES!”), Alltel seemed to be beating a dead horse. When CenturyTel sued Alltel for revealing to the world CenturyTel's intentions to sell its wireless unit, much of the industry and the media closed the book on the merger. Analyst Rex Mitchell, who covers CenturyTel for BB&T Capital Markets, wrote in an Aug. 22 report, “The lawsuit brings the probability of a merger of the two companies closer to zero.”

However.

Amid all of CenturyTel's rancorous refusals, its stock retained the roughly 15% leap it took in reaction to news of the merger proposal. Alltel's stock, which dipped about 7% with the news, was not returning. “Why?” Mitchell asked in an Aug. 29 report. “Is the market treating these stocks as if the deal will happen even though the deal has virtually zero chance of going through?”

Anyone who read CenturyTel's refusal and litigation as the end of the story doesn't know anything about corporate takeover behavior, said Tom Burnett, president of merger and acquisition consultancy Merger Insight. CenturyTel is just playing hard-to-get. “Lawsuits are fairly standard,” Burnett said. “It's the way you build a moat around the castle. You get depositions, background information; you snag some disclosure that might help you down the line. You discourage Alltel by showing them you're going to fight hard and be a pain in the ass, which will eventually motivate them to raise the price.”

Several of CenturyTel's shareholders have already publicly criticized CenturyTel for refusing to even talk to Alltel. And on Aug. 20, Gerald Hannahs — a CenturyTel shareholder who lives in Little Rock — filed a class-action lawsuit against the carrier for not coming to the table. Hannahs is even asking for an injunction to prevent the sale of CenturyTel's wireless unit until the Alltel proposal is independently reviewed. (Hannahs did not return phone calls seeking comment.)

“To really stonewall and say, ‘We're simply not going to talk to them’ is not what a shareholder wants to hear,” said portfolio manager Tim Fidler of Ariel Mutual Funds, which owns 2.3 million CenturyTel shares. If CenturyTel's third-quarter report is disappointing and fails to reassure shareholders that selling the wireless unit will bring them greater returns than merging with Alltel, the bear hug could get a lot tighter.

Scott Ford cut his first big deal at age 12, when he and his father, Joe Ford, agreed that he would never, ever work at Alltel. Joe Ford worked for his father-in-law, Alltel Co-founder Hugh Wilbourn Jr., since 1959 and vowed to spare his son what he endured: “People always look at you like, ‘Well, do you have any talent, or are you just here because of your father-in-law?’” Joe Ford said.

After graduating from what is now the University of Arkansas's Walton College of Business (named after another imperialistic Arkansas family, the Waltons of WalMart fame), Ford sharpened his M&A acumen with two years at Merrill Lynch and eight years at Stephens, a Little Rock investment firm and one of Alltel's largest shareholders.

He might have stayed there if not for the Telecom Act of 1996, which hurled longtime independents like Alltel into a noisy new world of competition. “1996 represented as many risks as opportunities,” Ford said. “How you value, think through and contract the risks into their proper profiles is a different skill set than running a telecom business.”

Knowing that, Joe Ford reluctantly brought his son into the company. And after a string of masterful deals, it's hard to find anyone who would question the younger Ford's talent. Acquisitions brought Alltel new territory, such as the $2 billion 1998 merger with Aliant Communications that delivered the state of Nebraska.

Even more crucial was 1998's $6 billion acquisition of 360° Communications, the Chicago-based wireless firm that gave Alltel 2.6 million wireless customers, a young, aggressive management team and a key bargaining chip: Las Vegas. In a subsequent deal with Verizon Wireless, Alltel traded its presence in Sin City for a nationwide roaming agreement, a move critical to staying in the fiercely competitive wireless game.

If the 360° merger prepared Ford for the size and scope of the CenturyTel bid, it did not prepare him for the politics.

If the 360° merger prepared Ford for the size and scope of the CenturyTel bid, it did not prepare him for the politics. In the book “The Legend of Alltel” by David Patten and Jeffrey Rodengen, former 360° President and CEO Dennis Foster recalls merger negotiations that took place while Alltel and 360° execs were “all sitting around our dining table with my two English mastiffs under our feet, the cat on the lap of somebody. And we liked each other. We trusted each other. Very atypical.”

At 39, Ford had never led a hostile deal before CenturyTel. He downplays that fact, pointing out that Alltel has hired Merrill Lynch, Stephens and hostility expert law firm Skadden, Arps, Slate, Meagher and Flom to advise the company in the CenturyTel matter. And while Ford has never been the point man on a hostile acquisition, he has been in the backseat of several.

At Stephens, Ford was peripherally involved with the 1990 acquisition of poultry company Holly Farms by Arkansas heavyweight Tyson Foods. It taught him a valuable lesson: Don't lead with a low price. It'll cost you more.

“[Tyson] led with a 25% premium, and it ended up costing them 50%,” he said. “When you start low, everyone knows you're starting low, so everyone assumes you're going to have a series of escalations. When you start high, they have to wonder whether there's an escalation at all or whether they're running the risk of getting zero.”

Though Alltel's bid for CenturyTel ($43 per share in cash or 0.6934 Alltel shares) represents a 47% premium over the company's six-month average, CenturyTel investors claim regulatory snags that have depressed the stock in recent months have been lifted, making Alltel's offer too low. At press time, CenturyTel's stock had buoyed to $34.28, reducing the premium of Alltel's offer to roughly 25%. Meanwhile, in a Sept. 5 report, W.R. Hambrecht analyst Peter Friedland writes that Alltel execs expect to retain their current credit rating (without borrowing more money), which some observers took as a hint that Alltel does not plan to raise its offer.

“The only way you can grow a business through acquisition and have it be profitable is if you don't fall in love.” --Scott Ford

Each side may end up getting zero, but each side knows the importance of being able to walk away from any deal if the price isn't right. “The only way you can grow a business through acquisition and have it be profitable is if you don't fall in love,” Ford said.

Ford admitted that Alltel's bid for CenturyTel was a pre-emptive strike to prevent CenturyTel from selling its wireless unit. While most telcos spun off their wireless units, Alltel had gone to great pains to consolidate its wireline and wireless operations in 1996 — unifying billing, infrastructure and management of each — to reduce costs and offer bundled services. So when Post — in a July 10 meeting at the Monroe, La., airport — offered Ford the chance to buy CenturyTel's wireless operations, Ford saw a baby about to be cut in half.

Selling its wireless unit, though strategically wise for CenturyTel, could mean surrendering as much as 35% of its value to taxes, according to Fidler.

Ford rolled his eyes when he heard rumors that CenturyTel would avoid the tax hit by pursuing a joint venture with Cingular Wireless, swapping wireless assets for wireline. “You tie the assets up for seven years,” he said. “Think about the value implications versus taking $43 [per share] today, maintaining half of that in stock and getting four times the dividend. You can't get there from here.”

The big question for Ford is where Alltel can get from here. He has a “no” from CenturyTel. What more could he be waiting for?

“A hundred different things,” he said, from failings in CenturyTel's wireless efforts to “social factors” such as the following: “What if a key board member — I don't know, pick one — changes his mind? Then the whole thing could change,” he said. “Why would he change it? Any number of reasons. He gets beyond the anger and has time to think.”

Among anonymous sources familiar with the deal, there are two theories about why CenturyTel is so adamantly silent. The first is that its resistance is meant to fetch a higher price. However, some of CenturyTel's own shareholders don't follow that logic. “If they have a number in mind as to what they think the fair value of CenturyTel is, I don't see why they wouldn't communicate that to Alltel,” said Kurt Funderburg, an equity analyst at Harris Associates, which owns 816,000 CenturyTel shares.

The second theory, made plain in Hannahs' suit against CenturyTel, is that its directors — some of whom are local retirees — are shirking their fiduciary duties to shareholders rather than give up the perquisites their positions afford. Critics suspect CenturyTel Founder and Chairman Clarke Williams of clutching the company tighter than anyone. As one source put it, “He built [CenturyTel]. He'd just as soon sell his left toenail.”

Ford acknowledged the sensitivity of the situation: “In every merger you're dealing with people's dreams, their views of themselves and where they fit in the world. There's nothing more personal to people than that in terms of the workplace.”

Williams, whom Joe Ford described as “a fine gentleman and a very good telephone man,” took the reins of what would become CenturyTel in 1946, while Joe's father-in-law was forging what would become Alltel. But while the 80-year-old Williams still chairs CenturyTel, his Alltel counterpart, Wilbourn, retired in 1983 and died this summer at age 85 just before Alltel made its formal merger proposal to CenturyTel.

It's not unthinkable that Williams' health could play a role in this story. He was unable to attend CenturyTel's annual meeting in May because kidney failure forced him to undergo dialysis treatment. A woman who answered the phone at Williams' home last month said he was “too sick to come to the phone.”

If Williams were forced to leave his post as chairman, Funderburg said, it wouldn't tip the scales of the voting process, but the loss of such an icon could be enough to shift the sentiment of the company. “When that has happened to other companies in the past, the chances that a deal gets done tend to increase,” said Funderburg. “The anchor, so to speak, is no longer there, and they're more likely to go in different directions.”

Ford admitted that all this public dueling could make for a thorny corporate culture if the two firms merge, but he said he sees any discomfort as ephemeral in the long term. Despite all the unknowns about the shape of a merged company, Ford said he wants to keep Post in a top role. And despite the rancor, he suspects he and Post share the same understanding about what it truly means to be “hostile.”

LET'S MAKE A DEAL? The evolution of Alltel's bid
Feb 16	Wireless competition forces reduced earnings outlook, layoffs
May	CenturyTel decides to sell wireless unit
July 10	Ford offers Post “in excess of $40 per share” for CenturyTel
July 26	Alltel letter to CenturyTel details formal offer
Aug 7	CenturyTel board meets to consider Alltel's offer
Aug 10	CenturyTel rejects Alltel offer
Aug 14	Alltel makes offer public
Aug 17	CenturyTel sues Alltel
Aug 20	CenturyTel shareholder sues the company
Aug 28	Ford and Post exchange open letters

“Glen understands the tactical steps we're each taking and does not have that confused with his personal feelings,” Ford said. When he heard that Post's last letter contained what appeared to be a sarcastic jab at Alltel's grandstanding (the letter read “PERSONAL AND CONFIDENTIAL” at the top, though, like Ford's letters, it was released simultaneously to the press), he laughed out loud and smiled with what seemed like admiration.

Ford views Post more like a partner than an opponent in this endeavor, acknowledging that it would take the two of them, working together, to fulfill Alltel's ambitions.

After the interview in his office, Ford dropped a vague invitation to go cattle roping, which sparked a follow-up question: There's a header and a heeler, he had said. The header nods, the gate opens. The header ropes the horns.

The question: “When you compete, are you the header or the heeler?”

Ford: “What do you think?”