U S West Inc.’s recent move to create two classes of common stock not only attracts a new kind of investor, but highlights the company’s emphasis on maintaining cohesiveness for the future convergence of voice, video and data services.
“We can expect to see more of this type of arrangement as various sectors of the communications industry converge,” said Jon Foxman, director of business planning for BIA Consulting Inc.
U S West announced earlier this month plans to create two classes of stock-a yield stock to track the company’s 14-state telecommunications business and a growth stock to track U S West’s wireless, multimedia, international and telephone directory divisions. U S West is not spinning off any businesses.
“We have a mix of assets with different financial characteristics, which attract different investors,” said Steve Lang, communications director for the multimedia group. “Spinning off would mean we couldn’t integrate with a single coherent strategy and we believe in the convergence of cable, voice and data.”
The plan will be implemented through a tax-free stock distribution that will allow shareholders to continue to hold the same level of economic interest in the company. The new stocks will trade separately on the New York Stock Exchange.
Current shares of U S West stock will be redesignated as U S West Communications Group shares, which tracks U S West’s regional telecom business. The company plans for this group to continue to pay the quarterly cash dividend, currently 53.5 cents per share.
To create the new U S West MediaVision Group shares, owners of U S West stock on the record date of the transaction will receive a one-time stock distribution of a new share for every share they own of U S West.
MediaVision Group stock will include the U S West NewVector Group, U S West Multimedia Group, U S West International Group and U S West Marketing Resources Group. MediaVision shares will pay no dividend, the company said.
NewVector provides cellular service and is a partner in PCS PrimeCo L.P. U S West International is a partner in Mercury One-2-One service in the United Kingdom.
Lang said that compared to other former Bell companies, U S West holds the greatest interest in cable TV, with a 25 percent stake in Time Warner Entertainment Co. L.P., one of the nation’s largest cable companies.
The MediaVision group is superbly positioned to benefit from worldwide growth in electronic commerce made possible by advanced networks, said Richard McCormick, U S West chairman and chief executive officer. “We have felt for some time that the financial market is undervaluing our stock. We believe that creating targeted stocks will help (investors) realize the full value from the company’s long-term strategy, while at the same time enhancing our financial flexibility,” McCormick said. “Because we are not creating separate companies, we will continue to profit from the combined strategic benefits of being a single corporation.”
Leroy Barnes, assistant treasurer of Pacific Telesis Group, said after PacTel announced spin-off plans for its cellular arm-now AirTouch Communications Inc.-the combined stock saw a 40 percent increase in value until the spin off was completed two years later.
BIA’s Foxman said he expects to see more stock divisions than spin-offs because of the current trend toward deregulation. “Multi-industry behemoths will go to this and greater lengths to maximize their stock values in the perception of the marketplace. In most cases, creating additional stocks will be the method employed,” Foxman said.
The company doesn’t expect changes in its credit rating because the plan doesn’t change the way U S West issues debt, U S West said.
U S West intends to file a proxy with the U.S. Securities and Exchange Commission this spring, then ask shareholders to approve a final proxy in the fall.
