40 slides from Telephone And Data Systems's proxy contest presentation, Aug 30, 2011
Slide 1: Share Consolidation Amendment and Vote Amendment
Share Consolidation Amendment and Vote Amendment August 30, 2011
Slide 2: Important Information
Important Information This presentation is not a solicitation of a proxy from any TDS shareholder. Additional information relating to the proposals to be submitted to TDS shareholders are included in TDS’ preliminary proxy statement and will be included in TDS’ definitive proxy statement when it bec
Slide 3: TDS Overview
TDS Overview Founded in 1969; IPO of common shares in 1981 Diversified telecommunications company with two principal business units U.S. Cellular (84%-owned)—wireless; 95% of retail are postpaid (NYSE:USM) TDS Telecom (wholly-owned)—wireline; broadband focus 7.1 million customers in 36 states Fortun
Slide 4: History of Special Common Shares
History of Special Common Shares (pre-2005) TDS lacked a stock currency Major transactions involving the issuance of Common Shares would change the status quo voting power and would not be supported by the Voting Trust TDS issued a “lower vote” stock to address the issue Stock dividend followed by s
Slide 5: Special Common Share Stock Dividend
Special Common Share Stock Dividend May 13, 2005, TDS issued a one-for-one dividend of Special Common Shares to holders of TDS Common Shares and Series A Common Shares TDS Special Common Shares Issue Date: May 2005 Purpose: Potential M&A transactions, including possible buy-in of the U.S. Cellular m
Slide 6: Volume Disparity
Special Common Shares Volume Disparity Index funds inclusion provides additional volume Common Shares included in Russell 1000, Russell 3000, and S&P 400 Special Common Shares have small amount of index fund ownership 7
Slide 7: Special Common Volume Disparity (cont.)
Special Common Volume Disparity (cont.) Since inception, trading volume of the Special Common Shares has averaged only 27% of that of the Common Shares, despite nearly equal amount of public float Volume Stats Volume Ratio (Special / Common Shares) 8
Slide 8: Trading Volume
Trading Volume Wireline Peers Wireless Peers Wireline Peers Wireless Peers Source: FactSet. Note: Average 6-Month Daily Trade Volume ($ Value MM) calculated using 07/15/11 stock prices. Note: Share Turnover Ratio calculated by the LTM total shares traded in the stock divided by current (end of perio
Slide 9: Special Common Price Disparity
Special Common Price Disparity Lack of liquidity appears to drive the Special Common Shares discount (versus Common Shares) Special Common Shares discount cannot be justified on economic grounds The Common Shares and Special Common Shares have identical economics Average discount since inception is
Slide 10: Price Disparity (cont.)
Special Common Shares Price Disparity (cont.) Discounts Stats Yearly Average Discounts 11
Slide 11: Capital Structure Challenges
Capital Structure Challenges Special Common Shares trade at a substantial discount to the Common Shares Economic dilution exists today from the issuance of Special Common for compensation Due to discount, further dilution occurs when TDS issues Special Common Shares Complexity due to multiple classe
Slide 12: Plan to Improve Capital Structure
Plan to Improve Capital Structure Share Consolidation Amendment - reclassify outstanding Special Common Shares (NYSE: TDS.S) as Common Shares (NYSE: TDS) on a one-for-one basis Vote Amendment – a “vote freeze” would be set at the aggregate percentage voting power of the Series A Common Shares and Co
Slide 13: Transaction Rationale
Transaction Rationale Consolidate the public float and increase market liquidity Eliminate the pricing discrepancy between classes of common Increases financial flexibility and enhances ability to structure and execute equity-based transactions Reduces dilution that occurs when Special Common Shares
Slide 14: Share Consolidation Amendment One-for-One Ratio
Share Consolidation Amendment One-for-One Ratio Achieves the original intent for the two share classes to have value parity The Special Common Shares were distributed in 2005 on a one-for-one basis with respect to Common Shares and Series A Common Shares Both shares have the same economic rights Equ
Slide 15: Precedent Transactions
Precedent Transactions Below are eight transactions in which the low vote stock was not indexed and traded at a discount. In these transactions, large and/or controlling shareholders did not see any diminution in their voting rights. High-vote Volume/ Company Reclassification Ratio Day Prior Premium
Slide 16: Precedent Transactions: Stock Price Impact
Precedent Transactions: Stock Price Impact 17 Trading Premium High Vote - Change in Price Low Vote - Change in Price Trading Premium Transaction Day Before Announcement Day Before Announcement to Day After Announcement Day Before Announcement to Day Before Vote Day Before Announcement to Day After A
Slide 17: Precedent Transactions: Liquidity Impact
Precedent Transactions: Liquidity Impact 18 Pilgrim’s Pride J.M. Smuckers Company Jo-Ann Stores Alberto Culver Freeport McMoran Conoco InfoUSA Cherry Corp 1. ADTV (90 Days Prior to Announcement) High Vote 98 18 206 369 1,098 1,633 65 0.7 Low Vote 25 25 51 105 142 700 60 1.4 2. ADTV (90 Days Followin
Slide 18: Capital Structure Current vs. Proposed
Capital Structure Current vs. Proposed Current Proposed Change Classes of Common (1) Three classes of common stock: Common Shares, Special Common Shares, and Series A Common Shares Differences in voting rights (see below) Common Shares are listed on the NYSE under the symbol “TDS” and Special Common
Slide 19: Capital Structure Current vs. Proposed (cont.)
Capital Structure Current vs. Proposed (cont.) Current Proposed Change Vote (1) For matters other than election of Directors Series A Common Shares = 10 votes/share (56.7%) Common Shares = 1 vote/share (43.3%) Special Common Shares = 0 votes/share (0%) For election of Directors Series A Common Share
Slide 20: Vote Amendment
Vote Amendment Voting Power Common Shares could be issued without affecting the current voting structure The vote per Common Share would float (election of directors remains the same) Assuming the vote is frozen at the current level, voting rights would be approximately: Series A Common Shares: 56.7
Slide 21: Vote Amendment (cont.)
Vote Amendment (cont.) The voting power of all holders of Special Common Shares would increase as a result of the transaction, resulting from the redistribution of part of the 43.3% voting power currently held by the holders of Common Shares The voting power of the Series A Common Shares, including
Slide 22: Pro Forma Economic and Voting Impact of the Transaction
Pro Forma Economic and Voting Impact of the Transaction Series A votes frozen at existing levels post-reclassification Increase of 2.7% due to the Voting Trust’s holdings of Special Common Note: Excludes Preferred Shares. There exists 8,300 Preferred Shares which are entitled to one vote-per-share f
Slide 23: Third Party Validation
Third Party Validation The transaction was unanimously approved by all TDS directors, including independent directors. Citi is acting as a financial advisor to TDS in connection with the proposed amendments. The independent directors were represented by their own financial advisor (Credit Suisse) an
Slide 24: Compensation Plans
Compensation Plans If proposal is approved, outstanding options and restricted stock units related to Special Common Shares would be converted into options and restricted stock units for the same number of Common Shares upon the same terms as in effect before the share consolidation 25
Slide 25: Solution Accomplishes the Following
Solution Accomplishes the Following Eliminate the discount in the market price of the Special Common Shares in relation to the Common Shares by consolidating such shares Consolidate the public float and increase the market liquidity of all of the publicly-traded shares of TDS Reduce economic dilutio
Slide 26: Solution Accomplishes the Following (cont.)
Solution Accomplishes the Following (cont.) Allow for easier analysis and valuation of the single class of publicly-traded common stock Increase the market recognition of the value of TDS Simplify the TDS capital structure and reduce investor and employee confusion regarding two publicly-traded clas
Slide 27: Analyst Commentary
Analyst Commentary J.P. Morgan Philip Cusick and Richard Choe The company announced a plan to reclassify the special TDS shares to common, which could take about 35 days after SEC approval of the proxy. The discount between TDS.S and TDS shares narrowed from ~12% to ~3% during the day (TDS down 16%,
Slide 28: Analyst Commentary (cont.)
Analyst Commentary (cont.) Stifel Nicolaus Christopher King and Josh James The company announced a proposal to reclassify the company's special common shares into common shares, thus simplifying the company's capital structure and eliminating the discount at which the special common shares tend to t
Slide 29: Approvals
Approvals The Share Consolidation and the Vote Amendment must both be approved for either to be effective The Share Consolidation Amendment Statutory vote: Majority of the voting power of Series A Shares, Common Shares and Preferred Shares, voting as one group Majority of the outstanding Common Shar
Slide 30: Approvals (cont.)
Approvals (cont.) Ancillary Amendment * Amendments to LTIP and Non-Employee Director Plans * Adjourn the meeting * * Approval will require the affirmative vote of the holders of stock having a majority of the votes which could be cast by the holders of the Common Shares, Preferred Shares and Series
Slide 31: Next Steps
Next Steps File preliminary proxy statement – August 8, 2011 Respond to SEC review/comments – approx. 2 to 8 weeks File definitive proxy statement Special shareholders meeting scheduled approx. 30 days after proxy statement filed If shareholders approve transactions, TDS Board would cause amendments
Slide 32: Summary
Summary At TDS, we understand that we have numerous strategic, operational and structural opportunities and challenges. Management, with the support of the Board, is working to address these with a sense of urgency. Today’s proposal represents an important step toward improving our capital structure
Slide 33: Structural Solutions
Structural Solutions Potential Solutions Evaluated Consolidate Share Classes Increase Relative Proportion of Special Common Shares Change Fundamental Attributes of Classes Solution I Solution II Solution III 1. Amend TDS corporate charter to convert Special Common Shares into Common Shares 1. Increa
Slide 34: Structural Solutions (cont.)
Structural Solutions (cont.) Potential Solutions Evaluated Management evaluated each potential solution on two criteria: Criterion 1 – Effectiveness: How likely is the solution to eliminate the discount, if it can be executed? Criterion 2 - Execution: Cost & probability of success Consolidate Share
Slide 35: Structural Solutions (cont.)
Structural Solutions (cont.) Potential Solutions Evaluated Increase Relative Proportion of Special Common Shares Solution II 1. Increase the number of Special Common Shares outstanding a. Secondary public offering of Special Common Shares b. Issue bonds convertible into Special Common Shares c. Make
Slide 36: Structural Solutions (cont.)
Structural Solutions (cont.) Potential Solutions Evaluated Denotes: Management identified to the board on Nov. 2010, that these were the main solutions on which it will focus Most Effective/Executable Least Effective/Executable Increase Relative Proportion of Special Common Shares Solution II Potent
Slide 37: Structural Solutions (cont.)
Structural Solutions (cont.) Potential Solutions Evaluated Change Fundamental Attributes of Classes Solution III 1. Ticker Symbols a. Change ticker symbol for both TDS.S to “TDS” and for TDS to something else (i.e. “TDS.B”) 2. Dividend Policy a. Increase dividend on Special Common Shares b. Reduce d
Slide 38: Illustrative Voting Rights Situations
Illustrative Voting Rights Situations The table on the following page illustrates the impact on the voting power of the various share classes if: The company issues new shares in the future The Voting Trust reduces its holdings of Series A Shares 40
Slide 39: Share Consolidation Idea (cont.): Illustrative Voting Rights Situations
Share Consolidation Idea (cont.) Illustrative Voting Rights Situations (1) Voting trust acquired shares of Special Common shares through dividends (2) Management is compensated with Special Common shares, which they currently hold today 41 Base Case (as of 6/30/2011) 10 Million Share Issuance Voting
Slide 40: Share Consolidation Amendment and Vote Amendment
Share Consolidation Amendment and Vote Amendment August 30, 2011