Commenting on Monday’s article on rejection of Icahn’s offer by the board of xoho, regular reader Brian Scully asks [1]:
In a world without Icahn, what are the XO assets and revenue stream worth?
A fair question, first let’s have a poll and see what readers think.
[poll id=”30″]
Now for my own thoughts. XO is an odd duck, it has very valuable assets but a large revenue base that doesn’t really fit those assets – hence the low EBITDA margins [2]. But like anything else, XO is worth what buyers are willing (and able) to pay for it. We already have a few datapoints in that regard in the form of early stage offers last spring and summer [3]. One bidder offered $940M for the wireline business and not including the NOLs, and another offered around $1B straight up. The financial advisor at the time felt these were viable options, and that was not an opinion XO was asking for. Those offers therefore would seem to be a reasonable guide.
However, we should keep in mind that neither offer was successful and both may have had some upside available if XO had been a bit more agreeable. Also, these bids were unsolicited – other bidders might show up if a real auction began and this would drive up the price. On the other hand, a whole lot has changed in the 15-18 months since in terms of industry valuations and the availability of capital. Whatever bidders might have been willing to pay then has probably declined since. I’d have to guess, however, that the two mostly offset.
So if Icahn weren’t Icahn, I think XO could sell for $1B right now if they wanted to, which corresponds to something near $1.75 for common shares. But of course Icahn is still in fact Icahn. Since the cat is still playing with the mouse and might try to eat it again at any moment, the value of the mouse is more of a theoretical than practical concept.
18 Comments To "What Is XO Worth?"
#1 Comment By DLM On September 30, 2009 @ 8:11 am
A buyer would have to figure it could wring at least a 16% EBITDA margin out of this network without breaking too much of a sweat. That’s $240MM in EBITDA.
That has to be worth at least 6x to a strategic buyer because (i) there are some irreplaceable assets here and (ii) without breathing too hard you could, over a few years, achieve synergies of at least $100MM.
That gets you TEV of at least $1.4BN. And that would be a bargain for the right buyer.
#2 Comment By thewanderer On September 30, 2009 @ 8:26 am
That’s not really how it works though. You don’t usually get to sell your company for what it would be worth if you weren’t underachieving.
#3 Comment By Brian Scully On September 30, 2009 @ 9:23 am
Since Dan was/is interested in XO and I value his opinion, I would be interested to hear his evaluation.
Dan???
#4 Comment By Rob Powell On September 30, 2009 @ 9:36 am
I strongly suspect that if in fact Zayo made a bid for XO last year, Dan would be unable to comment in case a second opportunity does arise.
#5 Comment By Dave Rusin On September 30, 2009 @ 5:58 pm
I would also think there remains an NDA in place for a year or two at least …
#6 Comment By D Patrick On September 30, 2009 @ 9:36 am
What an interesting question. Based on information I got from this website, a buddy of mine and myself bought about 1K of XO stock at .18/share. I appreciate the insight. If the stock gets to .80/share I’m selling. Any takers?
#7 Comment By Mike On September 30, 2009 @ 11:32 am
It has to be worth something if Level 3 and TW Telecom were looking at it. They have a robust network. level 3 doesn’t have the money and TW does not have the cash. If it were to be a stock trade off, XO’s stock is not worth very much, so, they are between a rock and a hard place.
#8 Comment By carlk On September 30, 2009 @ 11:50 am
LVLT doesn’t have the money, or won’t be rolled themselves? Yup, that’s what the stock price keeps saying!
To his disadvantage, he came out of that TICKING TIME BOMB of a LEVERED quasi-government cesspool, not to mention that house of cards, Merrill Stingy, before his Fannie tenure.
#9 Comment By carlk On September 30, 2009 @ 11:53 am
Oh, me forgot! Google Chrome’s copy and paste feature doesn’t work here. One must use Msft’s IE.
#10 Comment By Rob Powell On September 30, 2009 @ 12:11 pm
Yes, haven’t figured this out yet, sorry Carl.
#11 Comment By carlk On September 30, 2009 @ 11:55 am
I guess not! Here’s the whole damn link, I think!
[4]
#12 Comment By Tony D On September 30, 2009 @ 6:39 pm
Any chance Icahn just wants to own this company for his on benefit? One more giant contract and this company is a cash cow.
#13 Comment By Rob Powell On September 30, 2009 @ 9:41 pm
Anything is possible, but ever since the difficulties of the Allegiance acquisition, it has seemed as if he had no interest in doing more than preserving the assets.
#14 Comment By NONE On September 30, 2009 @ 10:33 pm
MOST companys are worth 5 to seven time’s revenues. but this isn’t regular times. so conservative would be 3 times revenues, 1.5 billion times 3 = 4.5 billion. minus Carl 750 million investment leaves 3.75 billion . divided by 185 million shares = 20 dollars a share. and if the company profitable in next year add on to that.. these low ball figures i see of 1 to 2 dollars is totally foolish…..
#15 Comment By Anonymous On September 30, 2009 @ 10:51 pm
Any ideas where XO’s capex has gone? Looks like they have spent close to 500 million over the last 30 months without a whole lot to show for that. Any hidden upside from this capex binge?
#16 Comment By Parkite On October 1, 2009 @ 10:39 pm
Bringing lots of bldgs on-net. Although, as Rob knows, they don’t actively update their lit bldg list for the public.
#17 Comment By Paul Gates On September 30, 2009 @ 11:28 pm
I have owned XO for over a year. from .20 to .70 in a few months. I am in the communications field and I was told recently that our company was considering a bid for XO.
We are the 2nd largest wireless network in the world, and I a
#18 Comment By Brian Scully On October 1, 2009 @ 7:59 am
Any idea what is behind the confidential order to withhold information from the Q2 report?