NEW YORK-Along with its fourth-quarter earnings release Jan. 28, Telephone and Data Systems Inc., Chicago, reported a lawsuit challenging its plan to repurchase publicly held stock in three of its subsidiaries.
The company-parent and majority owner of Aerial Communications Inc., American Paging Inc., United States Cellular Corp. and TDS Telecommunications Corp.-reported increases in revenues but declines in operating cash flow and net income. It attributed the losses to costs associated with launching Aerial, which began commercial service in March.
The contested share repurchase proposal, announced Dec. 18, would make TDS the sole owner, rather than the majority owner, of its cellular, personal communications services and landline phone subsidiaries. Once the buy-back is completed, the parent plans to issue new public shares as individual classes of TDS stock that would “track” each of the subsidiaries.
TDS disclosed that Airmont Plaza Associates filed Dec. 29 a “punitive class-action complaint on behalf of minority shareholders of U.S. Cellular in the Court of Chancery of the state of Delaware in New Castle County … [alleging] a breach of fiduciary duties” by TDS, U.S. Cellular and U.S. Cellular’s board of directors.
The complainant seeks to block the tracking stock reorganization plan or, failing that, to recover “unspecified damages, fees in connection with the proposed U.S. Cellular merger.”
A second lawsuit, filed Jan. 5 by Richard Greenfield in the same court, makes similar allegations against TDS, Aerial and Aerial’s board, and seeks similar remedies.
TDS said it “intends to vigorously defend against these lawsuits.”
Fueled by a 30-percent jump in cellular revenues and a 59-percent increase in cellular subscribers, TDS reported $412 million in overall revenues, a 29-percent increase compared with the last quarter of 1996.
U.S. Cellular closed out 1997 with 1.71 million customers, a 59-percent increase from 1996. It posted 158,000 net customer additions during the last quarter and 195,000 new subscribers due to an exchange transaction with BellSouth Corp.
Aerial, which began commercial operations in March, ended 1997 with 125,000 customers. Average monthly usage per customer was 350 minutes, and average monthly revenue per subscriber was $70.
Startup costs attributed to Aerial caused the parent company’s operating cash flow to decline by 56 percent, to $41.2 million. Without the effects of Aerial’s startup activities, operating cash flow would have increased by 10 percent, to $102.4 million, said the company.
TDS posted a fourth-quarter net loss, excluding $3.5 million in gains from asset sales, of $38.9 million, compared with $10.9 million in net income reported the same quarter a year ago. Aerial’s startup costs reduced net income available to common stock shares by $49.7 million, compared with $6.6 million during the final quarter of 1996.
Primarily due to the effects of Aerial’s operating losses, TDS reported a diluted loss per share of 65 cents, vs. 18 cents in the year-ago quarter, both excluding asset sale gains. The net loss associated with Aerial’s operations reduced earnings per share by 83 cents, as opposed to 10 cents in the last quarter of 1996.
American Paging, Minneapolis, which is to be merged with the privately held TSR Paging Inc., Fort Lee, N.J., reported adding 18,300 customers during the fourth quarter to bring its subscriber base to 811,000. But it also reported a 9-percent decline in service revenues from the year-ago quarter and a net loss of $14.9 million. Included in this tally is $1.9 million in merger-related costs.
A special committee of independent American Paging directors is reviewing TDS’ proposal to buy back at $2.25 per share any outstanding common stock it doesn’t already own. Once the share repurchase is completed, TDS and TSR will contribute their assets and certain liabilities to a new company called TSR Wireless L.L.C.
TDS didn’t report any shareholder lawsuit in connection with this transaction.
