Icahn Tightens Grip on XO Still Further

September 10th, 2010 by · 8 Comments

In an SEC filing today, an entity controlled by Carl Icahn announced that it has purchased another 17.5M shares of the common stock of XO Holdings (news, filings).  It was a private transaction at $0.60 per share, roughly at which the stock was trading yesterday when it occurred.  That’s well below the last price Icahn offered to buy the company at last year.  17.5M shares is rather close to the last reported holdings of R2 Investments, which has been locked in several parallel legal tussles with Icahn – one of which includes XO.  If those shares came from R2, then there could have been a settlement of some sort.  But actually, the seller is probably Diamondback Master Fund, whose last reported holdings were 17.2M shares – I don’t know of any other holders of this size.

Icahn now controls 91.26% of the voting rights, which means he can pretty much do what he likes unless a court tells him otherwise.  But one thing is for sure, XO needs to raise money to fund its current expansion plans.  They have regularly stated their dislike of taking on debt, but they seem to have few other choices.  Icahn’s move could foretell a break in the logjam that has been holding that up.  Is he about to make a move on the rest of the company?  Or is he just digging in deeper to wait out the shareholder lawsuits?

Some wonder why I spend as much time as I do watching XO’s travails.  There are several reasons.  First, as chunks of telecom go, XO is quite large and has some very nice assets.  If it finally goes on the market or gets the right kind of funding and leadership then the balance of power could shift rather quickly and unpredictably amongst competitive telecoms and it would a good idea to be prepared.  Second, there are about 4000 people employed at XO that have endured the better part of a decade of this soap opera, not to mention some very vocal and colorful investors – they deserve a voice.  And third, well, it’s Carl Icahn and he always keeps things interesting.

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Categories: Financials · Mergers and Acquisitions

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8 Comments So Far

  • Don't mess with Ichan says:

    Minority shareholders are about to get burnt big time. Hell sell the whole company in a year or two for $3-$4 and make a killing.

  • Dave Rusin says:

    I don’t know which will be better, waiting to read the book or wait to see the movie.

    I can picture Carl going down the Red Carpet as an Oscar Nominee … if he plays himself … no one can play Carl but Carl.

  • Tex says:

    Rob, what gods this company down? It appears to have all the components for growth.

  • Tex says:

    Sorry, should be holds this co down. Geez, miss one letter with auto replacement enabled and a simple question is turned into a philosophical query.

    • Rob Powell says:

      Well, I’m on record as arguing that it’s Icahn himself that stands in the way, though I’m sure he doesn’t always mean to.

  • anon says:

    i will offer my usual yawn on all things XO. while Rob is correct to notice this ownership soap opera (majority owner wants control and isnt interested in opinion of sub-10% holders).

    However, as a telco story this is minimally interesting (at least to me). Lot’s of CLECs with heavy relince on (1) re-sold ILEC assets and (2) leased/shared IXC assets have perished due to structural cost disadvantage. See, e.g., McLeod (and others) had assets on L3’s identical physical LH network. But if L3 uses one duct and XO another, that leaves 10 empty. Plus wiltel, broadwing, etc. As such, the “assets” analysis shows PP&E but nothing all that unique. Their metro assets appear to be underutilized or the ebitda margin gets even harder to reconcile.

    So it is fair to say that “customers” are more interesting than “assets”. Indeed, the asset that Icahn and otherse seem to find most interesting are tax NOL’s, not ducts or strands.

    The company is actually quite leveraged, if one is willing to view the Preferred Equity as debt (which, not coincidentally, is how GAAP auditors list it).

    So, this one appears to be “YADC” — yet another distressed CLEC. Too much opex, too many under-used assets and not enough customer traction. I am sorry for their employees, but there are never any good or safe jobs at entities that don’t create value. Ask the former employees of enron, worldcom, Chrysler, Delphi, GM, AIG, Lehman, Countrywide, McLeod, Allegiance, ICG, et al.

  • fluids_only says:

    Great, looking forward to being burnt with a nice buy-out offer that passes muster with R2 and the other discontents.

    My guess is in the 1.80 – 2.40 range. A little optimistic, perhaps, but one can always dream.

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