Rumor has it that company-wide layoffs are about to hit XO Holdings (news, filings), an event which would put the COO Wayne M. Rehberger's announced departure earlier this week in an entirely new light. The company may actually announce the workforce action publicly on Friday, but I'm not holding my breath given that XO usually only tells the outside world what it is legally required to. The full scope of the layoffs are not yet clear, but internal rumors peg them as high as 10% of the total workforce. If anyone has any further information either in favor or to the contrary of this rumor, please do speak up.
One place the layoffs will apparently hit hard is at a national accounts program aimed at cracking the Fortune 2000 that the company put in place in June of last year according to sources. Very substantial resources had been dedicated to the project, which was backed personally, although unofficially, by majority owner Carl Icahn. It was to be the future of the company, the growth engine that would finally put them on the map. Initially led by an executive and top recruits lured over from other nextgen Tier 1 providers, the group was starting to make real progress. But by the end of the year management had changed, Icahn's interest had faded, the purse strings had been cut, and the program is now a shell if that while much of the revenues it had generated are now churning off.
I can't help but notice how this timeline dovetails with Carl Icahn's attempt to buy out minority shareholders last year in early July. That effort met resistance but finally fell apart late in the Fall and Icahn withdrew his offer, which corresponds quite well to the internal changes in the national accounts program. Then the company repaid his class A preferred shares without raising new money, leaving their cash on hand below $100M as of Q1 while growth has sagged. The inference: Icahn had a grand plan and was putting real resources behind it, but when thwarted in his attempt to take over fully he took his ball and went home.
So what does all this mean in the here and now? Well, the obvious conclusion to draw from such a layoff event is that XO is trying to clean house and raise EBITDA prior to a sale of the company. In terms of headcount, a 10% layoff could bring savings of some $50M or more annually, which could raise annualized EBITDA toward the $200M mark. Multiples for metro fiber are high right now and XO does have a nice pile of it, and therefore it would be a good time to sell if that is their intention.
Now, I've speculated often enough about who might want to buy XO and why that I'm not going to do it in detail here except to say that not much has changed: TW Telecom is probably the best fit but Level 3 has reasons to bid as well. Zayo and PAETEC were both rumored to be interested in the past and certainly might still be. However, Icahn's real intentions are of course not so easy to divine. What is he really up to this time? Opinions are welcome!