Icahn Makes His Move On XO

July 10th, 2009 by · 17 Comments

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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Categories: Internet Backbones · Mergers and Acquisitions · Metro fiber

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17 Comments So Far


  • Concerned says:

    So what does this mean for the common share holder? Will they be forced to part with their shares for .55?

  • Rob Powell says:

    It means there will be a vote by shareholders not including Icahn, and if he wins 50% then yes you will be forced to part with those shares at $0.55.

    ACF Holding suggested that the definitive agreement relating to this transaction
    provide that, in addition to the vote required by law, the transaction be
    approved by the holders of a majority of the Shares not held by Mr. Icahn or his
    affiliates.

  • jeremy drane says:

    so what happens if he gets less than 50%?

    • Rob Powell says:

      He either raises the bid or finds some way to increase the pressure before trying again. Remember they still need to refi the class A preferred by March 2010 if I recall correctly.

    • kewp4dawg says:

      My bet is he is taking them private. Doing so saves the business millions in regulatory filings and accounting costs and since he is already in control and making ALL of the decisions whats the difference? none except again savings millions.

      On selling it …. I don’t think so. He’s investing money in new management teams, new sales, new products, new markets, etc. He is more interested in acquiring other assets that are distressed. Buy low. Sell high. not now.

    • Warro says:

      You can take the headline and do a search for it in Google news. You will get the article. The writer says Icahn should give the shareholders a better deal.

  • carlk says:

    Icahn, the hypocritical, narcissistic, censoring dictator-he refuses opposing views to be presented on his blog- is attempting a cram down a price on his shareholders! Who shouldn’t have expected it! In the mean time, this member of a “criminal cabal” as featured in Dr. Patrick Byrne’s “Deep Capture,” wants to run away with NOL’s, further avoiding US taxes on non corresponding business operations. I don’t know how the “change of control” percentages will matter, or why they haven’t “precluded” him from seeing reduced loss numbers already, during the process, but I’m sure Jay Rockefeller does! Thus far, Jay, has been indifferent to LVLT shareholders’ requests to amend laws for salvaging losses in the wake of these new Bear Raids, which have continued to wreak havoc on company share prices. Let’s hope Jay, or someone more powerful even-assuming such a force exists-PUTS IT to this “Wolf of Wall Street,” the Big Bad Boy, Carl Icahn.

  • Tony D says:

    I see him taking this private and buying others. I know everyone wants him to sell this but its not gonna happen he has to much to lose.

  • Dave Rusin says:

    If they go private, I see them as a consolidator that can now run quickly.

  • Tony D says:

    So if you worked at XO right now it would be a good idea to look for another job? lol

    • kewp4dawg says:

      Why would it be a good idea to look for a new job? Going private IMO gives them flexibility. If i were at LVLT or GC I would be looking for a new job. GC in particular isn’t paying its bills and forcing its staff to take unpaid vacation days. Any chance they get they delay and slow roll payments to the point where they get threatened with shutdown of services every month. On LVLT they don’t have the right management team in place to make anything happen.

  • Tony D says:

    So whats everyone’s take? Is the a Merger or Acquisition about to happen? If so by who? Who makes out? How many jobs will be lost by XO people or whoever else they merge with?

  • ? says:

    I hope this means that XO will either be laid off indefinitely, or they will get better mgmt in here and provide raises. They treat the employees like crap.

  • ? says:

    GO ICAHN!!

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