For a long time now, many have expected the majority owner of XO Holdings (news, filings), Carl Icahn, to finally buy out the rest of the company. Well, he’s now making his move. In a letter disclosed in an SEC filing today, it was revealed that one of his corporate entities, ACF Industries Holding Corp, has offered $0.55 per share for the rest of the common shares he doesn’t already own. And at the end of the letter, ACF made clear that they aren’t interested in selling their shares to a higher bidder, meaning that this is not an auction. This is the second red flag in the last few weeks implying that Icahn is readying XO for a sale, following the recent reabsorption of Nextlink.
What does it really matter if Icahn goes from 89.5% ownership to 100% ownership? For other shareholders it matters a great deal – I expect some noise – because for them it will still be selling near the bottom when they still feel unfairly punished by the market and manipulated by Icahn himself. But for Icahn, the difference between owning 89.5% and 100% isn’t that substantial, hence it’s likely just the first step in an overall sale process. This scenario is one that has been brought up frequently over the last year. If XO were going to be sold, then first Icahn would want to strip off the net operating loss (NOLs) carryforwards – he has access to those as things currently stand, but if he were to sell the company in its current form he would lose them. The cleanest way for him to keep those NOLs is simply to buy the rest of the company, then drop the assets to a lower entity while keeping the NOLs at the top, and sell that entity. That is, I think, his plan.
It has been a long time in coming, but it seems clear that Icahn is finally ready either to cash out entirely or to use XO as leverage to get a more viable piece of the telecom space as I speculated last month. The likeliest buyers for XO’s assets are Level 3 Communications (NYSE:LVLT, news, filings), glbc, and TW Telecom (NASDAQ:TWTC, news, filings). I have always thought the fit was best with TW Telecom, but any of the three could easily find the synergies to make it work. At least one of those must finally be ready to make a deal, else Icahn wouldn’t be making this move. XO’s margins suck, but its assets could easily be very valuable in other hands.
Can Icahn get away with $0.55 per share? Perhaps. It is hard to make a logical case that it’s worth more given that the stock has been trading much lower than that for a year. There will probably be a vote though, since that was part of the agreement Icahn made with the company as part of the last refinancing.
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