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TDS under pressure to find big
U.S. telecom buyer
Wed Mar 11, 2009
1:39pm EDT
By
Anupreeta Das
NEW YORK (Reuters) - U.S. regional phone
company Telephone & Data Systems Inc (TDS.N)
could face pressure to sell itself to bigger rivals, which have been eroding
the company's market share and outpacing it technologically.
TDS, which owns 81 percent of U.S. Cellular
Corp (USM.N),
the country's fifth-largest wireless operator, has grappled in recent months
with investor dissent over what strategy it should follow.
It faces a potential proxy battle against
Mario Gabelli's Gamco Investors (GBL.N),
which owns a 14.8 percent stake, while activism from Southeastern Asset
Management is also expected to increase in coming months.
Southeastern, which controls about a 15
percent stake in TDS, wants the company to put itself up for sale, according
to four people with direct knowledge of the situation, none of whom were
authorized to discuss the matter publicly.
"TDS is more valuable in the hands of a
larger player," said one of the sources.
Verizon Wireless (VZ.N)
(VOD.L),
AT&T Inc (T.N),
Sprint Nextel Corp (S.N)
and Deutsche Telekom's (DTEGn.DE)
T-Mobile USA are all squeezing more revenue out of cellphone users through
exclusive contracts with handset makers or other partnerships.
At the same time, these well-capitalized
companies are investing in new network technologies, such as LTE and WiMax,
which enable high-speed downloads on cellphones.
As the large wireless companies expand
their high-speed offerings, smaller independent phone companies could lose
market share because they do not have the resources to build their own
advanced technologies.
"TDS is one of the last regional carriers
standing," said Blair Levin, a telecoms policy analyst at Stifel Nicolaus.
The souring economy, coupled with slowing subscriber growth, will push the
industry to consolidate even more, he added.
TDS spokesman Mark Steinkrauss said the
company plans to be "a fairly aggressive follower" of Verizon's U.S. LTE
network. "We've got $800 million in cash and cash equivalents, we're not
being pressed financially," the spokesman said.
AGE OF MERGERS
Analysts say consolidation among U.S.
wireless carriers is inevitable as the battle for market share intensifies,
with four out of five Americans already owning cellphones.
Last year, Verizon Wireless bought rural
carrier Alltel for $28.1 billion in June, and AT&T Inc bought Centennial
Communications in November for $944 million.
"Any of the four national carriers would be
interested in adding (U.S. Cellular's) 6 million customers," said Sergey
Dluzhevskiy, a sell-side telecoms analyst at Gabelli & Co, referring to
AT&T, Verizon Wireless, Sprint and T-Mobile.
He added that TDS's wireline phone
business, which contributes about one-fifth of its total revenue, is also
attractive because it generates steady cash flow.
AT&T and Sprint declined to comment.
Verizon and T-Mobile were not immediately available to comment.
According to Southeastern, which has owned
TDS stock since 2001, a written, all-cash buyout was offered to TDS in late
2007. The unnamed bidder offered TDS a 50 percent premium, or about $100 a
share, Southeastern said in a May 2008 filing that cited a "reliable
source."
Since then, TDS shares have lost about 60
percent of their value, and now trade at about $25 a share.
But TDS's controlling shareholder, the
Carlson family, is in no hurry to relinquish its grip. The family owns a
roughly 10 percent stake but holds 52 percent of voting power, which would
make any investor battle tough.
FAMILY BUSINESS
Last month, Southeastern asked TDS to
disclose the details of a report produced by a consultant that the fund said
TDS used to justify its strategy to remain independent.
TDS' Steinkrauss said the company will make
no such disclosure because the documents are "confidential and may impair
our competitive situation." Steinkrauss declined to confirm whether TDS had
received a buyout offer.
Southeastern took issue that TDS's board --
which has eight members appointed by the Carlson family -- had not publicly
disclosed the offer, and withheld votes from the four remaining independent
directors at last year's annual meeting.
Gamco is nominating four candidates to
replace these independent directors at the 2009 meeting, but Gabelli's firm
is not working in consort with Southeastern, the sources said.
(Reporting by Anupreeta Das; Editing by
Tiffany Wu and Derek Caney)
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