The price GTE Corp. is offering for publicly held Contel Cellular Inc. shares was set arbitrarily, does not take into account that the company’s profits are expected to increase and places an artificial lid on the market price for the stock, enabling GTE to buy the shares at the lowest possible price, according to statements made in lawsuits filed by Contel Cellular shareholders to block the purchase.
GTE announced Sept. 8 its proposal to acquire the remaining 10 percent of Contel Cellular it didn’t buy in its 1991 purchase of Contel Corp. Under terms of the offer, GTE would pay $22.50 for each of 9.95 million Class A Contel Cellular common shares. Contel Cellular stock closed at $17.50 a share Sept. 7.
Four Contel Cellular shareholders-Paul Gambal, Arnel Gonzalez, Blimy Itzkowitz and Airmont Plaza Associates-have filed separate lawsuits in Delaware Chancery Court to stop the purchase or seek damages if the acquisition goes through.
The lawsuits make similar charges:
GTE’s purchase of the shares would deprive shareholders of their equity investment and earnings from future Contel success in the marketplace.
The price of $22.50 per share is unfair and does not consider potential market value. GTE “undervalued Contel’s common stock by ignoring the full value of its assets and future prospects,” according to one of the lawsuits. “The buyout transaction does not reflect that Contel’s financial condition is positive and will continue to improve as the national economy recovers.”
The case filed by Paul Gambal claims that since the original purchase in 1991, GTE has caused Contel to enter into various transactions that made the value of Contel Cellular’s stock go down. And under a tax-sharing agreement between GTE and Contel, the two companies filed a consolidated return that caused Contel’s taxes to go up and GTE’s to go down, the lawsuit alleges.
But analyst John Bain, with stock broker Raymond James & Associates in St. Petersburg, Fla., said GTE is offering a fair premium over the market price.
“You could argue that you believe it’s worth more,” he said. “Fine. I don’t know. Presumably the stock market passes judgment on that. It’s hard to argue it’s not a fair offer.
“We believe that the stock market sets fair prices. I mean that’s what the price is. The price is what the price is.”
But the plaintiffs are likely looking at the future value of the cellular stock, based not only on how it will benefit GTE by increasing its cellular footprint in the near future, but how the further explosion of wireless services through personal communications systems is likely to boost stock prices.
GTE has acknowledged that owning 100 percent of Contel Cellular would make bidding for PCS spectrum later this year easier because only one bid would have to be submitted instead of two.
And owning all of the shares could place GTE in a better position for a cellular partnering agreement, not an unlikely prospect with deals like Bell Atlantic Corp./Nynex Corp. and U S West Inc./AirTouch Communications popping up with a frequency likened to the attempted cable/telecommunications convergence partnerships that began last year.
With cellular’s duopoly hold on the wireless market coming to a close, carriers are looking for any edge they can get.
“What I would suspect (about the purchase proposal) is that, you see everyone is scrambling to hook up with the right partners,” noted Philip J. Sirlin, an analyst with Wertheim Schroder & Co. in New York. “As long as they didn’t own the whole company, it was more difficult to do a joint venture with someone else.”
Not owning 100 percent of Contel Cellular “could create complications in putting the deal together. That’s just one hypothesis,” he added. Sirlin said he doesn’t know of any planned partnering deals in the works for GTE. 9On the other hand, you know, if I was GTE, I’d certainly be trying to find a partner.9
Dianne Hammer is a freelance telecommunications writer based in Denver, Colo.
