As AT&T's proposed acquisition of Centennial Communications demonstrates, the market crunch isn't stopping consolidation in the wireless sector.The deal should put the spotlight on Telephone and Data Systems, whose 80.8% owned U.S. Cellular is one of the last regional wireless carriers standing. Serving 6.2 million customers, U.S. Cellular is an obvious acquisition candidate for Verizon, although that company's pending purchase of Alltel means any deal could be some way off.
Even so, TDS stock, down 55% to $28 since the start of the year, is cheap. At its current market capitalization of $3.2 billion, and adding net debt of $630 million, enterprise value is about three times projected 2008 earnings before interest, taxes, depreciation and amortization. AT&T's offer for Centennial values that company at nearly seven times Ebitda. AT&T is trading at around five times.
There is reason to believe TDS's controlling shareholders, the Carlson family, aren't looking for an exit. Shareholder Southeastern Asset Management stated in a filing in May that TDS last year rejected an all-cash offer from a "well-resourced strategic acquirer" at a 50% premium to the then-market -- nearly $100 a share. TDS won't comment.
Southeastern has tried to squeeze TDS by voting against directors. Shareholder Gamco is considering running its own slate. Competition is likely to be more effective. If TDS stays independent, a bigger rival could decide to enter U.S. Cellular's markets by building towers rather than paying U.S. Cellular roaming fees.
Self-interest should drive a deal in the end.
