The Shareholder Forum

for

Telephone and Data Systems, Inc.

Forum Home Page

TDS Home Page

TDS Reference

 

Reuters, March 11, 2009 article

 

 

TDS under pressure to find big U.S. telecom buyer

Wed Mar 11, 2009 1:39pm EDT


By Anupreeta Das

NEW YORK (Reuters) - U.S. regional phone company Telephone & Data Systems Inc (TDS.N) could face pressure to sell itself to bigger rivals, which have been eroding the company's market share and outpacing it technologically.

TDS, which owns 81 percent of U.S. Cellular Corp (USM.N), the country's fifth-largest wireless operator, has grappled in recent months with investor dissent over what strategy it should follow.

It faces a potential proxy battle against Mario Gabelli's Gamco Investors (GBL.N), which owns a 14.8 percent stake, while activism from Southeastern Asset Management is also expected to increase in coming months.

Southeastern, which controls about a 15 percent stake in TDS, wants the company to put itself up for sale, according to four people with direct knowledge of the situation, none of whom were authorized to discuss the matter publicly.

"TDS is more valuable in the hands of a larger player," said one of the sources.

Verizon Wireless (VZ.N) (VOD.L), AT&T Inc (T.N), Sprint Nextel Corp (S.N) and Deutsche Telekom's (DTEGn.DE) T-Mobile USA are all squeezing more revenue out of cellphone users through exclusive contracts with handset makers or other partnerships.

At the same time, these well-capitalized companies are investing in new network technologies, such as LTE and WiMax, which enable high-speed downloads on cellphones.

As the large wireless companies expand their high-speed offerings, smaller independent phone companies could lose market share because they do not have the resources to build their own advanced technologies.

"TDS is one of the last regional carriers standing," said Blair Levin, a telecoms policy analyst at Stifel Nicolaus. The souring economy, coupled with slowing subscriber growth, will push the industry to consolidate even more, he added.

TDS spokesman Mark Steinkrauss said the company plans to be "a fairly aggressive follower" of Verizon's U.S. LTE network. "We've got $800 million in cash and cash equivalents, we're not being pressed financially," the spokesman said.

AGE OF MERGERS

Analysts say consolidation among U.S. wireless carriers is inevitable as the battle for market share intensifies, with four out of five Americans already owning cellphones.

Last year, Verizon Wireless bought rural carrier Alltel for $28.1 billion in June, and AT&T Inc bought Centennial Communications in November for $944 million.

"Any of the four national carriers would be interested in adding (U.S. Cellular's) 6 million customers," said Sergey Dluzhevskiy, a sell-side telecoms analyst at Gabelli & Co, referring to AT&T, Verizon Wireless, Sprint and T-Mobile.

He added that TDS's wireline phone business, which contributes about one-fifth of its total revenue, is also attractive because it generates steady cash flow.

AT&T and Sprint declined to comment. Verizon and T-Mobile were not immediately available to comment.

According to Southeastern, which has owned TDS stock since 2001, a written, all-cash buyout was offered to TDS in late 2007. The unnamed bidder offered TDS a 50 percent premium, or about $100 a share, Southeastern said in a May 2008 filing that cited a "reliable source."

Since then, TDS shares have lost about 60 percent of their value, and now trade at about $25 a share.

But TDS's controlling shareholder, the Carlson family, is in no hurry to relinquish its grip. The family owns a roughly 10 percent stake but holds 52 percent of voting power, which would make any investor battle tough.

FAMILY BUSINESS

Last month, Southeastern asked TDS to disclose the details of a report produced by a consultant that the fund said TDS used to justify its strategy to remain independent.

TDS' Steinkrauss said the company will make no such disclosure because the documents are "confidential and may impair our competitive situation." Steinkrauss declined to confirm whether TDS had received a buyout offer.

Southeastern took issue that TDS's board -- which has eight members appointed by the Carlson family -- had not publicly disclosed the offer, and withheld votes from the four remaining independent directors at last year's annual meeting.

Gamco is nominating four candidates to replace these independent directors at the 2009 meeting, but Gabelli's firm is not working in consort with Southeastern, the sources said.

(Reporting by Anupreeta Das; Editing by Tiffany Wu and Derek Caney)

 

Thomson Reuters 2009 All rights reserved

 

 

This Forum program is open to all shareholders of Telephone and Data Systems, Inc. (NYSE: TDS), and its controlled subsidiary, United States Cellular Corporation (NYSE: USM), and to any fiduciaries or professionals concerned with their investment decisions. Participation is free of charge, according to the Forum's standard Conditions of Participation.

The purpose of the Forum is to provide shareholders with access to information and a free exchange of views relating to their consideration of issues described in the Forum Summary. As stated in the Conditions, all Forum participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants. Forum polices are intended to support anonymous communication, and provide that participants will not be identified or quoted without their explicit permission.

The initiation of this program was supported by Southeastern Asset Management, Inc., which as manager of the Longleaf Partners Funds and other client funds is the largest TDS shareholder with common and special common stock aggregating more than 15% of the total of all classes outstanding. TDS has been invited to assume corporate responsibility for the costs of addressing issues of apparent significance to a broad range of its investors, according to the Forum's Conditions, and other participants may be invited to contribute support to the continuing program pending the company's acceptance of responsibility.

Inquiries and requests to be included in the Forum's distribution list may be addressed to tds@shareholderforum.com.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.