Ever since Carl Icahn’s bid for the 10% of XO Holdings (news, filings) he doesn’t already own and the subsequent revelations from the litigation by R2 Investments of two bids last year, I have wondered about something. Where are those bidders now? Not just those two – rumored to be Zayo and Paetec, but there have been other talks over the past few years with others like Level 3 and TW Telecom with whom there are obvious synergies. Icahn is offering some $0.55 which translates to a pathetic net purchase price of about $730M – just six times 2009 EBITDA. Surely someone can beat that?
Certainly XO’s minority shareholders are hoping for a white knight to make another offer, as it would aid their case even if Icahn blocked it. Considering the fact that the credit markets were open enough to let Global Crossing rake in $750M recently, it wouldn’t seem that hard to pull off. It doesn’t take much to sweeten the pot for minority shareholders, an extra $50M corresponds to another $0.27/share – half again as much.
However, the reason no bidders are making their presence felt probably is that the only people who care about Icahn’s buyout price are XO’s minority shareholders. Potential buyers of XO realize that it doesn’t matter to them whether Icahn stiffs minority shareholders or not, because as soon as he has control he is very likely to split off the NOLs by dropping the assets and revenues into a subsidiary and selling them off. After all, So actually, potential buyers of XO’s assets would rather Icahn get his way now rather than later, and they don’t care what price he gets it at so long as it’s low enough to make flipping it profitable.
Bidding against Icahn in this situation therefore is counterproductive, and any three-way negotiations (R2/Icahn/bidder) seem far-fetched right now given the level of rhetoric. So despite the fact that XO topped Telecom Rambling’s summer survey of which fiber-based telecoms were most likely to get sold, a deal probably isn’t going to happen anytime soon if the legal standoff between R2 and Icahn/XO solidifies.
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