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August 28, 2009 Forum Report:

Analysis of Market Views

Increased value of US Cellular

Increased value of TDS limited-voting stock

Fluctuations in relative prices of securities



Forum Report: TDS


Analysis of Market Views


As some of you have noticed, an updated “Forum Summary” was posted Monday on the main page of the TDS web site.

Several of you expressed interest in the footnoted data about changes in relative stock prices since the TDS program was initiated three months ago.  Following are some of the observations that have been discussed.

Increased value of US Cellular


The market pricing of US Cellular (“USM”) stock increased, absolutely and in relation to wireless averages.  The closing price was up 10.4%, from $32.37 per share on April 28 to $35.73 on August 24.  Compared with other companies in the Reuters Wireless Telecommunications Services Industry Index, the USM market price increase reduced its discounts from 51.1% to 47.1% the average price relative to sales and from 35.8% to 34.8% relative to book value.

Since prevailing views of US Cellular’s competitive position did not seem to become more favorable during this period,[1] some Forum participants have suggested that the market pricing improvement may reflect increasing expectations of event-driven value enhancement.

Increased value of TDS limited-voting stock

The company’s “Special Common Shares” (NYSE:TDS.S; 50,959,100 shares reported outstanding as of June 3, 2009), which have limited voting rights,[2] increased 5.7% in value during the three months, from $23.85 to $25.20 per share.

The increase in Special Common value was more significant in relation to industry trends and, notably, the company’s other listed class of stock.  The standard one-vote “Common Shares” (NYSE:TDS; 51,651,691 shares outstanding) decreased 3.8% in value during the same period, from $27.49 to $26.44 per share, so that its premium to the Special Common was reduced from 15.3% to only 4.9%.

Two possible influences have been suggested for this Special Common value improvement.  One, of course, is simply the focus on that class of stock – and the opportunities presented by its pricing spread relative to Common Shares – generated by the Southeastern proposal for recapitalization.[3]  The other is the same view of what produced a similar increase in US Cellular value, assuming that it resulted at least partly from increasing investor expectations of events to generate value.

Fluctuations in relative prices of securities

Whatever assumptions are made about the market pricing of the various US Cellular and TDS securities, there does not appear to be any rational basis for the fluctuating relationship between the pricing of TDS stock and the market’s established value of the US Cellular stock held by TDS.

The value of the 81% of US Cellular shares held by TDS was priced by the market at $20.40 per TDS share on April 28 and at $23.05 per TDS share on August 21, for shares of all classes outstanding.  Based on the market’s pricing of TDS Common Shares, as shown in the chart to the right, the amount of remaining value attributed to all the remaining TDS operations dropped 52.2% from $7.09 per TDS share to $3.39 per share, or from 25.8% to 12.8% of the share price, suggesting a total value of only $370 million for all the non-wireless TDS business operations.

(The pricing based on the Special Common dropped only 37.6% during this period, but at lower levels from $3.45 to $2.15 per share, or from 14.5% to 8.5% of share price, suggesting a $235 million valuation of the main TDS business operations.)

It should be noted that a Forum participant who has been following TDS for several years reports that these seemingly irrational variations in pricing relationships have been common.  This would suggest another type of value enhancement opportunity that might be considered by Forum participants.

Comments invited

Your questions and comments about these observations, or about the data on which they are based, will be welcomed.

GL – August 28, 2009

Gary Lutin

Lutin & Company

575 Madison Avenue, 10th Floor

New York, New York 10022

Tel: 212-605-0335



[2] Generally the Special Common shares have one vote per share for a class of directors, but no voting rights for other matters such as business combinations, while the Common Shares have one vote per share for the same class of directors as well as for other matters.  The unlisted Series A Shares, most of which are held by a family voting trust, have ten votes per share and elect a majority of the board.  For details, see April 28, 2009, Telephone & Data Systems, SEC Form DEF 14A: Proxy Statement (92 pages, 451 KB, in PDF format).



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

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.