Centel Corp. agreed to a controversial merger with Sprint Corp. in May after failing to receive any bids that measured up in terms of shareholder value and certainty, according to materials disclosed by the two companies Thursday.
Forty-five expressions of interest and 18 written proposals were received by the April 16 deadline Centel had set after announcing earlier this year that it was considering selling all or part of the company to maximize shareholder value. But only Sprint`s merger deal dealt with the entire telecommunications company and offered the advantage of a transaction that would be tax-free to Sprint shareholders.
”I`m glad the facts are finally coming out; we`ve been gagged since May 28 (when the deal was first diclosed),” said John P. Frazee Jr., chairman and chief executive of Chicago-based Centel. ”There`s been a lot of speculation about what the bids and prices were.”
Significantly, Frazee said, large parts of Centel`s cellular operations-business representing about 29 percent of its potential cellular
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subscribers-received no bids at all.
Proxy materials to be issued to Centel and Sprint shareholders in advance of separate shareholder meetings on the deal, called for Dec. 2 in Chicago and Westwood, Kan., also disclosed that one Centel director opposed the deal and declined to participate in the final vote of Centel directors on the proposal. The Sprint proposal, a tax-free exchange of stock, is valued at $33.39 per Centel share, based on Thursday`s stock prices. The deal was widely criticized by institutional holders of Sprint stock and by analysts when it was announced in May, and several suits were filed to block the merger.
When Centel invited bids in February, some analysts had said the company could fetch $50 a share in whole or in pieces. During the period between Jan. 23, when Centel announced that it was exploring the possible sale of all or part of the company, and May 27, when the prospective merger was announced, Centel stock traded for as much as $47.75 per share, after never topping $38.50 in the two previous years.
But investment bankers advising Centel warned that rejecting the Sprint merger and remaining independent-one of three other options considered by the board, in addition to Sprint`s-would push Centel`s stock to $29 a share, the proxy materials state. The other proposals had other drawbacks, the advisers said.
Centel`s stock closed at $32.12 on the New York Stock Exchange Thursday, before the proxy statement was released, and Sprint`s shares finished at $24.37. Each Centel shareholder would receive 1.37 shares of Sprint in the proposed transaction.
In addition to remaining independent, Centel`s board considered two other alternatives seriously:
– Selling Centel`s telephone operations in Illinois, North Carolina, Virgina and Texas for cash; paying a cash dividend to Centel shareholders of $2.20 a share; repaying Centel debt; and retaining or spinning off remaining ceullar operations. This option was valued by Centel`s investment bankers at $28 to $31 a share.
– An even more complex transaction involving the sale, spinoff and tax-free merger of various Centel properties. This deal might have carried a value of as much as $35.50 a share, the investment bankers said, but the Centel board concluded that the risks associated with this deal, including regulatory questions and the potential adverse effect on the acquirer`s stock price, made it unsatisfactory, the proxy materials say.
A last-minute oral proposal after the April 16 deadline was also considered and rejected, Frazee said, because it was based on incomplete assessments of the value of Centel`s assets and because of its last-minute timing.
Frazee reiterated his view that the merger with Sprint would enable Centel shareholders to participate more profitably in the growth of the telecommunications business. Centel shareholders, in effect, would end up owning 35 percent of the post-merger Sprint, and their dividends would increase 52 percent based on current payouts.
Eliminating job redundancies and efficiency moves would cut about 1,000 jobs from the combined companies, according to the documents. Which company would bear the brunt of those cuts hasn`t been determined, but Frazee said the growth potential of the combined companies probably would offer job-transfer opportunities for some laid-off employees.
Centel director Kenneth Douglas, now retired, opposed the Sprint deal, the proxy materials show. Douglas said he believed Centel`s objectives in deciding early in the year to review its fate had not been met and that there was no urgency to enter into any transactions.
In a telephone interview, Frazee said Douglas declined to take part in the final vote to approve the Sprint bid, and praised Douglas, a former official of Franklin Park-based Dean Foods, for being a ”catalyst” for discussion on the board. ”He did what a director is supposed to do. He said what he thought,” Frazee said.
At the merged company, Frazee is to have have ”responsibilities for local telephone operations, cellular operations, strategic planning and investor relations,” according to the proxy, and to have the titles of president and chief operating officer. Sprint`s highly successful long-distance operations will continue to be managed by Ronald T. LeMay; William T. Esrey will continue as chairman and chief executive of Sprint.
Frazee, who was entitled to some $6.9 million in severance payments under his Centel contract, has agreed to forgo his right to that money in exchange for a $3 million cash payment upon the execution of the merger. The proxy says he and Sprint have agreed that his approximate salary will be $415,000 and his target bonus $375,000 for 1993. His cash compensation in 1991 at Centel totaled $1.07 million.
According to pro forma financial statements included with the proxy, the combined assets of the companies as of June 30 amounted to $13.85 billion. Their combined operating revenues for the first six months of 1992 were $5.05 billion, with 11.6 percent of the total, $587 million, attributable to Centel. During the first half of 1992, Sprint earned $499.2 million, or 88 cents a share, up from 79 cents in the first half of 1991; Centel earned $92.2 million, or 74 cents a share, up from 67 cents.