The cable companies that currently own 60 percent of Sprint
PCS will see their combined share dwindle to 47 percent under a new restructuring plan.
But they may soon have a way to recoup their investment in
the wireless-phone venture.
Sprint Corp. announced details last Tuesday of the
restructuring plan that it worked out with partners Tele-Communications Inc., Comcast
Corp. and Cox Communications Inc. Sometime over the next several months -- possibly in
August -- Sprint PCS will sell shares to the public in an initial public offering intended
to raise $500 million to $1 billion by selling less than 10 percent of the venture's
equity.
The partners have invested about $4 billion in Sprint PCS
to date. The restructuring gives Sprint full management and control, and it rids the MSOs
of future capital obligations to the venture.
Sometime after the IPO -- one analyst estimated six months
-- the MSO insiders will be able to sell their Sprint PCS tracking shares.
Before they are able to sell their shares, the MSOs will
have set a publicly acknowledged valuation of the asset that they helped to finance. That
should help to enhance the value, for example, of TCI Ventures Group, which holds
TCI's Sprint PCS equity.
Furman Selz & Co. analyst Fred W. Moran said the
details, which flesh out general terms that Sprint announced the previous week, were in
line with expectations, and they will help the MSOs to cash in when they are ready. Moran
added that the MSOs probably would have preferred to sell out to Sprint altogether, but,
failing that, the tracking-stock arrangement is about the best possible outcome.
None of the MSOs is strapped for cash, he added, so they
can afford to wait and watch the market valuation of Sprint PCS while deciding how much of
their holdings to sell.
TCI spokeswoman LaRae Marsik echoed that thought, saying
that the company was "not actively seeking to sell or monetize the asset at this
point. Tax efficiency is always our highest priority."
Before the restructuring, TCI owned 30 percent of Sprint
PCS; Comcast and Cox owned 15 percent each; and Sprint controlled 40 percent. The four
companies originally got together in 1995 with plans for a nationwide phone venture that
would combine wireless- and cable-based telephony. It was scaled back to a wireless
service, and it became a financial investment for the MSOs, versus a strategic one.
Cox released a statement from its CEO, James Robbins,
saying that the tracking stock "better aligns the interests of Sprint and the cable
partners, and it gives Cox a more clear valuation benchmark, which enhances liquidity and
flexibility for its stake."
Marsik said the MSOs essentially traded the capability of
blocking Sprint PCS actions in exchange for a public valuation of the asset and liquidity.
The restructuring also eliminates the uncertainty of the partnership's future capital
requirements. TCI has held back on repurchasing TCI Ventures Group shares because of that
overhang, she said.
"It's a good value for our shareholders,"
Marsik added.
The restructuring plan minimizes the MSOs' voting
stake in Sprint PCS, while accommodating the interests of Sprint Corp.'s
international telco investors -- France Telecom and Deutsche Telekom.
Sprint will issue Sprint PCS tracking stock to follow the
venture's financial performance. Initially, the MSOs will get 47 percent of the
equity, and Sprint 53 percent. The MSO shares carry low voting privileges: 10 shares equal
one vote.
Sprint PCS will also include PhillieCo -- the partnership
between Sprint, TCI and Cox, serving Philadelphia -- and the SprintCom wireless licenses
that Sprint bought on its own.
Sometime in mid-July, if things go as planned, the Sprint
PCS venture will register for the IPO, which will probably get priced sometime in August.
The 53-47 split will be proportionately reduced to reflect the publicly issued shares.
Then, later this fall, the Sprint PCS stock will be divided
into three categories: Series 1, with full voting rights, held by Sprint and the public;
Series 2, held by the MSOs, with limited voting; and Series 3, held by France Telecom and
Deutsche Telekom. The two foreign telcos will buy enough Series 3 shares to maintain their
20 percent voting status in Sprint and to attain a 20 percent voting stake in Sprint PCS.
France Telecom and Deutsche Telekom said in a prepared
statement that they planned to buy $100 million in newly issued Sprint PCS shares, and
that they would buy $125 million to $150 million in additional stock after the IPO.
Moody's Investors Service Inc. downgraded
Sprint's long-term unsecured-debt ratings because of the additional capital burden
associated with Sprint PCS, but it upgraded PCS partnership Sprint Spectrum's debt
ratings because of Sprint's management control and the ability to integrate the
wireless service with other Sprint offerings.
Moody's said it was likely that Sprint Corp. would
refinance Sprint PCS' long-term secured debt and vendor financing.
