NEW YORK-Telephone and Data Systems Inc., Chicago, announced Dec. 18 a plan for “roll-up mergers” involving its repurchase of the publicly traded stock of its three subsidiaries and issuance of three new classes of “tracking stock,” one each for United States Cellular Corp., Aerial Communications Inc. and TDS Telecommunications Corp.
In early January, the TDS board of directors, which already has approved the proposal, will submit the plan to company shareholders. The corporate restructuring also would include a change in TDS’ state of incorporation to Delaware from Iowa.
“For some time, we have felt that the price of TDS shares has not fully reflected the inherent value of each of the business units. By creating three new classes of stock, we will give shareholders the opportunity to invest in separate securities that specifically reflect each underlying business,” said LeRoy T. Carlson Jr., president and chief executive officer of TDS.
“Our plan will improve liquidity for the publicly traded equity of U.S. Cellular and Aerial, maintain certain tax consolidation advantages for TDS, sustain our credit capacity and preserve financial flexibility for TDS management to maximize the long-term growth of shareholder value.”
Public shareholders, which own 18.9 percent of U.S. Cellular’s outstanding common stock, would instead receive shares on a pro rata basis totaling an equal amount of TDS tracking stock for U.S. Cellular. Likewise for public shareholders, which currently own 17.5 percent of Aerial’s outstanding common stock.
Under the plan, the TDS parent would issue new TDS Telecom tracking stock in a public offering for cash, which would represent between 15 percent and 25 percent of the equity value of the TDS landline phone company subsidiary. Proceeds will be used by TDS Telecom for general corporate purposes.
“We currently have three companies that are in very different stages of development,” Carlson said.
“U.S. Cellular has grown at an explosive rate over the past several years, becoming the major contributor of cash flow and valuation to TDS. TDS Telecom, our historically strong profit and cash flow generator, is well positioned within its territories and is beginning to leverage its strengths into new markets and a much broader product line. Aerial Communications, our newest business, is in a start-up mode and will require cash, rather than generate it, over the next few years.”
Upon completion of these restructuring transactions, all three businesses will be wholly owned subsidiaries of the parent, and about 80 percent of the equity value of each will be publicly trading as TDS tracking stocks. Telephone and Data Systems initially will retain about 20 percent equity value in each subsidiary.
American Paging, which is 80-percent owned by TDS and 20-percent owned publicly, would not be affected by the reorganization proposal.
