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Our Outlook for the Telecom Sector

Takeover speculation is fueling a surge in telecom sector valuations.

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Since the proposed buyout of  Alltel (AT) by private equity investors in May, speculation has run rampant about future acquisition targets among U.S. and Canadian wireless carriers. In most cases, we think the hype is unwarranted. However, that hasn't prevented shares of  Sprint Nextel (S),  U.S. Cellular (USM),  Telus (TU), and other rumored takeout candidates from surging in anticipation of similar lucrative bids. Alltel, the nation's fifth-largest wireless carrier, is being sold for $28 billion, representing more than a 20% premium to its share price before word of an expected deal spread. The transaction marks the largest private buyout ever in the telecommunications industry, which historically has been ignored by private equity investors.  BCE (BCE), the biggest communications company in Canada, has also attracted multiple suitors and is poised for a buyout.

Patrick Elgrably does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.