In a surprising move, TSR Wireless L.L.C. announced April 1 it submitted a competing bid to acquire MobileMedia Communications Inc., challenging Arch Communications Group Inc.’s effort to do the same.
The action was part of an alternative plan of reorganization filed by certain MobileMedia unsecured creditors who oppose MobileMedia’s current plan of reorganization, which details the proposed merger with Arch. MobileMedia had filed a stipulation to its reorganization plan that allowed the dissenting creditors to file an alternate plan by April 1.
Under the new proposal, TSR and MobileMedia would combine into a new entity owned by TSR’s current owners, which includes affiliates of TA Associates Inc., Spectrum Equity Investors and Telephone & Data Systems Inc., as well as unsecured creditors of MobileMedia.
While the exact financial details of TSR’s proposal were not disclosed, Erik Volfing, TSR’s vice president of finance, said MobileMedia senior creditors would be paid out fully in cash, while unsecured creditors will receive stock in the new company.
According to George Putnam, president of New Generation Advisers Inc.-the group representing the opposition creditors-the new company would be public. TSR currently is private.
“We had looked at MobileMedia before but didn’t think it was something we could get involved with,” Volfing said. The stipulation allowing an alternate plan presented the opportunity TSR needed to get involved, he said, when the objecting unsecured creditors approached TSR with a merger proposal.
Under the original plan of reorganization, MobileMedia unsecured creditors would be given 14.3 million shares of Arch stock and the option to buy another 108.5 million shares at $2 a share. To fully participate, unsecured creditors would have to contribute a total of about $217 million under the rights offering for additional stock, which Arch then would use to finance the merger.
Should they choose not to participate in the additional rights offering, unsecured creditors only would get their allotted portion of the 14.3 million shares. The unsecured creditors objecting to this plan are mostly MobileMedia bondholders, which believe they essentially are being asked to finance the Arch takeover.
The TSR proposal also extends to unsecured creditors a block of stock and a subsequent rights offering, but according to Putnam, the initial block of stock under the TSR plan would be worth more than the stock offered under the Arch plan.
“The bondholders under the TSR plan receive outright a lot more than under the Arch proposition,” Putnam said. “What you get outright from Arch without putting any money in is four to five cents on the dollar. With TSR, its more like 19 cents on the dollar,” he said.
Additionally, the subsequent rights offering under the TSR plan would ask unsecured creditors to pay less-up to $65 million in additional stock, as opposed to $217 million.
Admittedly, the Arch plan allows unsecured creditors to own more stock, but Putnam said he believes the TSR plan would extend to the group stock with a greater value.
“The percentage of ownership would be lower in the TSR proposal, but the value of what you get is higher.” he said. “The resulting entity would be considerably less leveraged under the TSR proposal.”
The U.S. Bankruptcy Court for the District of Delaware is scheduled to rule on the two reorganization plans April 12. Whichever the judge deems of better value to creditors overall will prevail. Putnam said his group hopes to convince creditors approving the original reorganization plan to support the newly submitted alternative plan instead.
Jefferies & Co. Inc. will act as advisers to TSR for the pending transaction.
