In a filing yesterday with the SEC, Carl Icahn increased his ownership of network operator XO in a private transaction, adding 3,995,000 common shares and 500,000 series A preferred shares to his holdings. Billionaire buys a few more shares during a panic, that’s not much of a headline perhaps – except that Icahn appears to be approaching the 90% threshold. If he reaches it, it may enable him “to execute a short form merger to eliminate the ownership rights of minority shareholders without all of the standard protections provided to minority shareholders in a self-dealing transaction“, as written by minority shareholder R2 Investments in a filing in August. Icahn refinanced the company at the end of July, which brought him over the 80% threshold and gained him access to the company’s tax assets.
According to a filing two weeks ago at the end of the quarter, Icahn “may be deemed to beneficially own in the aggregate 665,537,779 Shares constituting approximately 88.07% of the outstanding Shares“. The new preferred shares he bought convert into an additional 6.932M shares, and if you add it all up that would seem to raise his voting share to 675,294,819, or 89.36%, just shy of that 90% threshold. Is R2’s fear about to come true? My calculations have his holdings a percent or two lower than that, but I’m not at all sure how it ought to be calculated with regards to outstanding warrants or accreted interest on the preferred shares etc.
Regardless, it does seem as if Icahn is finally making his move with respect to XO. Hypothetically, if he wanted to sell the company and keep the tax assets (NOLs) for himself, the easiest way is to take it private first. Then he could restructure it such that he could keep the NOLs the way Leucadia did with Wiltel, and sell off the pieces. To do it directly is more complicated, given the current NOL sharing agreement. Besides, if he can pick it up for a song during this financial panic, all the better when he sells it during the recovery. If this is his plan, it should become apparent soon, and we will probably hear from R2 in the near future as well.
On the other hand, maybe he just thinks it’s cheap… Haha, at $0.20 who could argue.
[Update: it turns out that a short form merger is off the table, details in this followup post]
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