Awaiting A Call At Cincinnati Bell

When money manager Tracy Chester visited Cincinnati Bell (CSN) a year ago, she was prepared to be bored by another utility presentation. Instead, she got excited about a "new stock find" she thought would be a "tremendous winner."

Specifically, Chester, an investment manager at Zurich Kemper Investments, believes Cincinnati Bell is an attractive takeover target in a rapidly consolidating industry. She has since built up a position in the stock for the two funds she runs--the $250 million Blue Chip Fund and the $720 million Kemper Retirement Fund Series.

Chester figures Cincinnati Bell, at 50 a share, is easily worth 65, based on the value of the company's three main businesses. The company's two nontelephone, unregulated businesses--Cincinnati Bell Information Systems and MATRIXX Marketing, together are already worth about 50 a share, according to Chester's calculations.

So you're paying nothing, she notes, for the phone operations, which serve 927,000 lines in Ohio, Indiana, and Kentucky. The information-systems unit provides billing and related services for other telephone companies. And MATRIXX offers telemarketing and financial services.

Kemper Analyst Jim Golan says Cincinnati Bell "would be a perfect fit" for such majors as AT&T, which intends to be a big player in the local phone business; Ameritech, the third-largest U.S. telephone holding company; or GTE, the largest U.S. local phone company.

Already, Cincinnati Bell has ties with some majors, including a five-year pact to provide billing services for AT&T's local phone business and a five-year, $200 million pact with Sprint to use one of its wireless products for Sprint's network.

Chester believes management is also mulling over the idea of breaking up the company by selling just the phone company and spinning off the two other businesses to Cincinnati's shareholders. The phone business could be sold for about $1.5 billion, or 21 a share, estimates Kemper analyst Golan.

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