Is Icahn About to Take XO Private?

October 17th, 2008 by · 6 Comments

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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Categories: Financials · Internet Backbones · Mergers and Acquisitions

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6 Comments So Far

  • fluids only says:

    All the evidence points to a plan to sell, including this particular transaction.

    The latest purchase was a private transation. If in fact this transaction takes him to just under 90%, when he could just as easily have take it to just OVER 90%.

    My guess is that he’s trying to flush out and deal with any further minority shareholder protests now, in order to give him as clean as possible a path to selling the company. The last thing he would want here is the possibility of minority shareholders injucting a merger, or reducing the value of the transaction because of a dirty due diligence report.

    He’d much prefer for the minority shareholders to be appeased before they have any knowledge of what he plans to sell it for and without any subsequent ability to do anything about it.

    A month ago would probably have sold for $1B plus. Who knows what the market value is now, but the minority shareholders will still have that number in their heads when they think about whatever options – limited or otherwise – they have now.

  • Rob Powell says:

    If he manages to take it private now for less than $1/share, and then turns around and sells the whole thing for $1B shortly thereafter… Wow, I don’t think minority shareholders would stop complaining about that for years.

  • jeremy drane says:

    so you have to ask yourself who would be the buyers?

    LVLT, TWTC……any other domestic buyer?


  • JR Ewing says:

    3,995,000 shares — THat is the exact number of shares reported in Third Point’s 13F. Is this just a coincidence?

    Cut a deal with R2, then buy third point’s shares in a private transaction. Whose left to stop the short form merger?

  • jeremy drane says:

    JR – this party is over. xo is going private. whether they sell now, or hold and spin out later is unknown, but i kinda think this is more a headache now so i think they will sell it to a buyer and be done with it.

  • JR Ewing says:

    Rob/Jeremy/Anyone :

    Does anybody have any idea what Icahn’s P/L looks like on XO? WHat did he pay for the bonds, how much have they paid off, and what kind of loss has he taken on the stock? Is he significantly underwater ?

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