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May 15, 2009 Forum Report:

Meeting's Definition of Value Enhancement Alternatives and Questions for Directors

Questions for TDS directors
Consensus conclusions about alternatives
Participant interests


For an archived NYSSA audio record of the meeting, click here.

For subsequent reports of governance issues and director responses to questions, see



Forum Report: TDS


Meeting's Definition of Value Enhancement Alternatives

and Questions for Directors

Participants in yesterday’s open meeting established an unexpectedly clear consensus view of TDS shareholder interests, based on similarly consistent expert analyses of strategic alternatives.  Applicable equally to public investors and beneficiaries of the controlling family voting trust, the conclusions reported below suggest that value realization will depend on the timing of the family trustees’ ultimately inevitable responses.  Simply stated, everyone will get more money if the company, or at least the subsidiary wireless system, is sold while it still has competitive value.

In this context, meeting participants were encouraged that representatives of the company’s independent directors were listening to our discussion.  Understanding the views of TDS investors will be a critical foundation for the directors’ responsibility to define the public shareholder interests that must be considered by a controlling shareholder.

Questions for TDS directors

The following questions are being presented to TDS directors based on the valuation issues discussed at yesterday’s Forum meeting, requesting their responses before or at the May 21 annual meeting of shareholders:

  1. Is there a strategic plan that you consider likely, in your own business judgment, to generate a risk-adjusted value in excess of what can be expected from a sale of the company, or of its interest in US Cellular?  If so, please tell us what you can about the plan without compromising the company’s competitive position, and also what value ranges you assume for sale alternatives.
  2. What do you consider to be the relative benefits of the current 81% ownership interest in US Cellular, compared with either 100% ownership or divestment?  For divestment alternatives, please indicate the types of transactions on which you base your views.
  3. What do you consider to be the benefits to TDS shareholders of the multiple classes of TDS and US Cellular stock?  It is suggested that you consider the alternative structure proposed by Southeastern Asset Management, but you should feel free to offer any examples you consider useful for comparison.
  4. What steps do you consider appropriate to assure investors as well as prospective buyers, commercial partners, employees and others that the company’s controlling shareholder is objectively receptive to explorations of  potentially beneficial proposals?  Please address this in its broad application, beyond opportunities for business combinations, dealing with the elimination of marketplace perceptions that may discourage the initiation of explorations.

Consensus conclusions about alternatives

These questions for directors were developed based on meeting discussions of suggested strategic alternatives, considering both the general acceptance of viability and the significance of value impact.  This is a summary of consensus conclusions:

§      Sale of TDS:  Responding to an initial $92 per share estimate, one of the meeting participants explained how a major strategic buyer would expect to generate significantly higher profit margins from TDS operations, and would value the business based on that to justify a $120 price.  That analysis was supported by observations of other meeting participants.  Noting the absence of any dispute, the chair explicitly confirmed that nobody present considered the valuation to be unreasonable.

§      Sale of only the US Cellular subsidiary:  It was observed during the meeting that the wireless business constitutes most of the current economic value and very little of the controlling family’s “heritage” value.  A separate disposition of US Cellular could therefore provide all shareholders, including holders of the family voting trust certificates, with fair value realization while allowing family members to retain control of the founder’s rural wireline legacy.

§      Simplify stock structure, with continued family control:  The simplified capital structure explained at the start of the meeting by Jeff Engelberg of Southeastern Asset Management was considered a practical initial step to set a foundation for more significant alternatives.  Some value enhancement could be expected from making the securities more marketable, but the most significant value would be from the message to the marketplace that the controlling shareholders are responsive to shareholder interests.

There was also extensive discussion about the significance of timing in relation to the sale alternatives, with these observations:

§      Natural course of family-controlled business disposition:  Ultimately, it can be assumed that family controlled businesses will be sold as passive family members become increasingly concerned about their economic opportunities, which stimulates the controlling members to think more about their responsibilities to respect those concerns.  Panel member Barry Sine offered several examples of local telecom companies that had followed this pattern recently, supported by observations of other participants as well as several Forum programs.

§      Natural course of telecom marketplace:  The value of wireless operations to strategic buyers can be expected to decline as the larger telecommunication companies progress with their development plans.  Simply, the major players will complete their national systems with whatever elements are available, and there will be little or no demand for the remaining elements.  It can also be assumed, too, that the competitive position of local operations will be increasingly weakened relative to national companies with more efficient systems and broader product resources.

Regarding the shareholder proposal presented by Southeastern Asset Management in the TDS proxy statement for next week’s annual meeting, the alternative was viewed as significantly value enhancing[1] but unlikely to be approved by the controlling family trust with 52% voting rights.  It was intended primarily as an investor referendum on the need for change, and will be addressed as such in this afternoon’s Glass Lewis “Proxy Talk” for governance issues.

Also presented for discussion was a lawsuit filed the night before the meeting by Grant & Eisenhofer, a firm recognized for its representation of pension funds in securities claims, seeking US Cellular’s recovery of possibly excessive charges by TDS for services and equipment.[2]  Although the attorney’s explanations did not support expectations of any meaningful benefit to shareholders of either TDS or US Cellular, it was noted that the claims were supported by an apparent legal assumption that the existing governance conditions do not effectively address the interests of public shareholders.

Participant interests

The 30 people who attended the meeting have earned our thanks for helping define TDS investor interests, and each is invited to offer comments on this report or any other issues addressed at the meeting.

To those of you who were unable to attend the meeting, please understand that attendance must be limited to a number of people that allows effective discussion.  Arrangements are being made to provide an audio or transcript record of the meeting, which should be available by early next week.


GL – May 15, 2009


Gary Lutin

Lutin & Company

575 Madison Avenue, 10th Floor

New York, New York 10022

Tel: 212-605-0335




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.

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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.