CenturyTel ups the ante

CenturyTel is taking the game of corporate brinkmanship with Alltel to another level, filing a lawsuit against its would-be buyer and accusing Alltel of various offenses.

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CenturyTel, which declined to comment for this article, is seeking unspecified monetary damages as well as an injunction that would prevent Alltel from interfering with the sale of its wireless unit (see box below).

By filing this lawsuit, CenturyTel is attempting to shift the terms of the discussion away from why it turned down the offer to Alltel's alleged misdeeds, said Eric Rasmussen, senior consultant for TeleChoice. “Instead of getting into a he said, she said, they're trying to elevate it to the level of a legal dispute.”

In addition, CenturyTel is sending a clear message that it is not interested in a merger, said John Bauer, analyst for Gerard Klauer Mattison & Co.

If Alltel were prohibited from interfering with CenturyTel's wireless separation as the suit seeks, it could limit Alltel's public statements, making it much more difficult for the company to plead its case to CenturyTel stockholders.

Such a tactic would indicate that enough bad blood has been formed on CenturyTel's part that a merger would be highly unlikely. However, Alltel is hanging its hopes on CenturyTel's management, recognizing its fiduciary responsibility to shareholders.

While denying any wrongdoing, an Alltel spokesman said it continues to receive positive feedback from CenturyTel shareholders and “we hope we'll have an opportunity to speak with CenturyTel's management about our proposal.”

If Alltel were to continue its active pursuit of CenturyTel, the next step would likely be an increased offer. Alltel, however, is severely limited in this area. The day after it first went public with its bid, Alltel's stock lost almost 7% of its value, dropping to the mid-$50s where it has, for the most part, stayed. Its shareholders would likely not stand for a more costly bid.

For CenturyTel, which has much of its shares held by management and employees, its task is to get its other shareholders on its side.

The most obvious way to do that, Bauer said, is to justify rejecting Alltel's offer and explain its plans for its wireless unit. The company, he said, must say to its stockholders, “‘Here's how we intend to create shareholder value as a stand-alone entity,’ and obviously the first step for them is to talk about their intentions on the wireless side.”