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TDS keeps line to upside open

Not so long ago, a large stake in Deutsche Telekom would have been a nice asset for any company to have on the balance sheet. When telecom companies were all the rage, such holdings could be sold for a healthy profit. By last year, however, such a block of shares was far more of a millstone than a jewel.

When Chicago-based Telephone and Data Systems (TDS) found itself needing to dispose of assets to improve its own situation - including more than 130 million shares in Deutsche Telekom - the options looked limited. Of course, it could sell the stake into the open market, but it was painful to think about the money it could have raised had it done that sooner. What's more, the company felt sure that share prices wouldn't stay at such low levels for ever. On top of that, TDS wasn't keen on a large tax bill.

The solution was to use a structure that got TDS its capital up front but meant that if Deutsche Telekom's share price recovered, the seller wouldn't miss out entirely on the economic upside.

Three-bank split

TDS entered into three transactions with different banks during the second half of 2002 that enabled it to monetize its entire holding in Deutsche Telekom.

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