Evidence of Icahn’s Meddling at XO Trickles Out

July 26th, 2011 by · 36 Comments

I’ve written many times about the future of XO Holdings (news, filings) and how the presence of majority owner Carl Icahn has warped the company to the detriment of both employees and shareholders, but it’s always from an abstract strategic point of view.  But recent emails uncovered in the discovery process in one of several lawsuits by minority shareholders and included in the revised complaint have painted his meddling in the company in sharp relief.  Here’s former CEO Carl Grivner’s email response to a fellow board member’s proposal to incentivize XO management with stock options in August 2008 (emphasis added):

First the stock option plan is not going to work.  If you read the Preferred Agreement and understand the tax issues, there is a significant reason for keeping the stock below $2 for as long as possible.  So while in most companies all the value that’s being created could be reflected in the stock price such is not the case here.  Another reason is the stock is not widely held, is offered on the pink sheets, and neither of those is likely to change.  So we either cash out the current plan in recognition of the last 5 years, convert it so there’s minimal upside or leave as is (which I described as worthless).  Your advisors need to look at the complexity of the overall situation and not simple option based modeling that most public companies use.

The tax issues here refer to the net operating losses, and the value being created by keeping the stock price low is Icahn’s ability to maintain his 80% ownership so he can use those tax assets to offset profits elsewhere.  And if Grivner didn’t explicitly say this was for Icahn’s benefit, an hour later the company’s then CFO Freiberg followed up with this supporting gem:

Carl [Grivner] asked me to sent [sic] this model to you.

I put this model together to show the impact of the XO stock price going up against the % Value Voting that Icahn affiliates have in XO.  The key point here is for Icahn to maintain at least 80% in order to keep the ability to consolidate NOLs.

If [sic] cell B20 you can plug in a stock price for XO, and in cell B42 you can see the Icahn Value Voting %.

Below $1.55 per share, Icahn is at 80% or more.  If the XO stock price goes above that, then potentially you lose the ability to consolidate the NOLs.

So let’s see.  The company’s CEO and CFO don’t want to use stock options to incentivize management and align their interests with shareholders because they don’t actually want the stock to go up.  Rather, they seek to ensure management has no incentive to see the stock rise, and thereby create value for Icahn via the NOLs at the expense of other common shareholders.  I can’t believe they actually wrote this stuff down.  Is there some other way to read this?

Meanwhile, Icahn is trying to buy Clorox, where he offered up the exact opposite sentiment to his current position on buying XO:

While we stand ready and able to buy Clorox, we encourage you to hold an open and friendly ‘go-shop’ sale process.  We are confident the process will result in numerous superior bids for this company.

Can’t make this stuff up.  I wonder who has the movie rights.

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Categories: CLEC · Financials

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36 Comments So Far

  • en_ron_hubbard says:


    Describing this as “meddling” is like saying that Norwegian guy has “off-center views”.

    This is fraud: plain, simple and in our face. We will hear a lot more about this.

    • Rob Powell says:

      The sad thing is that after all the financial-sector crap we saw go past in 2008 and 2009 without penalty, I doubt any of it will really surprise anyone. This is actually precisely what many already thought the BOD was saying and doing behind closed doors, it’s just that now there is an actual paper trail.

      • en_ron_hubbard says:

        Well, the NY Post has now picked up on this blatant example of corporate fraud:


        • Brian Boru says:

          The country needs an example of corporate fraud being punished and this is as good as any. Icahn has no credible defense. He will not be believed if he says he did not know of Grivner and Freiberg manipulating the share price down. The emails put him between the prison rock and the prison hard place. I do not think he has a way out. If the court refuses to create two classes as Icon’s attorney desires then I think a tapestry will be woven tying the 2008 transaction, Icon’s previous lowball offers, and the merger together into a whole cloth of criminal stock manipulation. I am not so sure that even if Icon sold at R2’s price (whatever that may be) that he will escape criminal prosecution. What he did to XO is serious business.

  • schmuckinsurance says:


    I love your site so don’t take this personally but you are wrong here. GS is under the gun b/c it may have ripped off Morgan Stanley according to Sen. Levin. AIG had Goldman take their lunch. BSC miscalculated with their subprime bet & funding sources and Lehman just had too much sleaze in the closet when the lights came on.

    In all of these situations, one group of equity holders took advantage of another. In the end the tax payers did come in, they eventually made money on the deal(the TARP had a + return) despite their complicity in the story given the largely non-recourse loans provided to them which gave them a one way bet on housing prices which were purchased many times using NINJA loans.

    This crisis hasn’t had the perp walk you’d expect until this episode. The gravity here is that a controlling shareholder(who has previously harmed TWA & Blockbuster being the 2 that come to mind first) again conspired to keep his mgmt team from giving equity holders & employees what was legally theirs as owners of the company – value. I am sure he didn’t think this was the episode that would trip him up but the fall was a long time coming.


    • Rob Powell says:

      I suppose I’ll believe it when they take him away, and not until then.

      • Anonymous says:

        Won’t happen. There’s nothing to link Icahn to any wrongdoings other than perhaps failing to fire what appears to be a grossly dysfunctional leadership team at xo who can’t see the world changing right before their very eyes. I do, however, expect things to get more difficult for grivner, freiberg and xo but I don’t think much will change wrt the merger with acf.

        • en_ron_hubbard says:

          “There’s nothing to link Icahn to any wrondoings”???

          First, I don’t think you’ve read the complaint. Second, there is a long string of actions and inactions taken and not taken in furtherance of a fraudulent goal. Third, there is the email trail which is prima facie evidence of the existence of the fraudulent scheme. Lastly, depositions are scheduled for these two clowns at the beginning of August and there is absolutely no reason for them to take the fall alone. We will hear the Nuremberg defense and Icahn will be dragged in. They clearly weren’t suppressing the stock price (or aware of a scheme to do same) for their own benefit.

          • Anonymous says:

            Does any evidence exist by mr icahn to his bod or the elt at xo? No. Only info seen is linked to grivner and freiberg which they now need serious legal help.

            • anonymous says:

              This is simply a more serious violation of laws then insider trading. If Martha Stewart deserved prison time, the violator here has to serve several times of prison time.

              Grivner and/or the former CFO will be deposed very soon.

              They will be convicted for crime if they can’t “remember” who instructed or forced them to commit the crime.

              Yes, Carl Icahn is rich, and we yet have had anyone, in a real sense, punished since the financial crisis. However, considering the fact that Carl’s foes in corporate America and WS certainly outnumber all the dogs there, we shall hear a loud hurray when he is brought to justice.

              • Guido Fawkes says:

                Doubt it. Won’t happen as there is no evidence. Grivner will get heat but will get off. The CFO may sing … But that’s a story that comes with saving his own behind ….. Obvious conflicts. I’m afraid thus far icahn has clean hands. How about a respected person like Dell who was also a former board member speak up?

    • Anonymously says:

      This is correct…..buying companies just to break them apart for his benefit only. He never intended XO to be a real comapny; if so we would have brought Intellifiber/One Communications or some of the minor companies that were on the market. Also we would have purchased a Cloud service provider not sign agreement to do business. He intentions were there from the start and they knew Carl’s plan….just wasn’t in an email.

      • Anonymous says:

        What if his plans are to hold for as long as possible so that when he does sell it’s the only viable asset left causing a bidding war? Possible yes. Why does this make him bad? No different than buying real-estate and not investing in it, holding it and then selling for premium.

        • Anonymous says:

          In real-estate you sometimes own out right, but if you have investors then that is another story. If you read the article this from NY Times. He stated why would I build the company up to 10mil in revenue a month…….if that’s true then why the low ball offer. Most crooks don’t pay top dollar for anything; can somebody name one. Clorox deal has to many eyes for him to steal it away.

          You are right, there will be a bidding war depending on how long he holds the company for the NOL’s. He might just sell it in pieces, hurting the employees even more. Until then, the dance continues………..

  • Anonymous says:

    Grivner is too afraid of CI to throw him under the bus. He’ll do his best Ronnie Reagan guaranteed!

    • en_ron_hubbard says:

      “Grivner is too afraid of CI to throw him under the bus. He’ll do his best Ronnie Reagan guaranteed!”

      Fire the air traffic controllers?

      Anyway, why be afraid of Icahn? WTF can he do?

      • Anonymous says:

        He’s got more money than you think. He will hire 200 lawyers and bury anyone who defames him. In this instance David unfortunately gets his head kicked in by Goliath. that’s what he can do.

        • en_ron_hubbard says:

          We are lucky that we live where we do, where money and influence really don’t get you far when it comes to Federal criminal activities. Our history is full of rich guys and gals getting sent away. The issue here is whether it gets the interest of some DA.

          BTW, I can’t tell whether you are the smart “anonymous”, the arrogant “anonymous” or the dumb “anonymous”. That’s an issue with Rob’s site.

          • John L says:

            Why don’t you use your real name ? Regardless I think there are several valid points all three anon’s make … This doesnt rise to criminal behavior on icahns part thus far. If more info is discovered then things may change.

            • en_ron_hubbard says:

              With respect, John L is just as anonymous as en_ron_hubbard, but at least there’s only one John L and one e_r_h. The name “anonymous” seems to have many users so a dialogue is tough.

              We can disagree whether the behavior here rises to criminality. Perhaps further discovery/depositions makes it clearer. We must hope that is the case because, whatever you choose to call it, serious bad shit and injustice is going down at XO.

              • John L says:

                I guess that’s what you get with anonymity but I like it as I suspect some of those anon’s responding know a good deal about what’s happening internally but if forced to give there names would not be able to shed some light on what’s really going on.

                That aside I truly hope that the courts intervene and stop the merger but it’s likely not possible as no criminal acts have been discovered thus far by mr icahn. It appears that he has “clean hands” regardless of what you or I think.

                I suspect icahns end game is simply an addition by subtraction – he gets the NOLs followed by a transaction of some kind moving xo out. When that transaction does occur if but an international player whom would need all that is XO is North America including the employees anything US based would likely result in substantial synergy reductions (jobs being axed to save sg&a).

                So while we all hate what he is doing we all just might not realize what’s about to come may be the worst thing for the employees yet. Btw what is happening with the CEO search? Anyone inside know?

                • en_ron_hubbard says:

                  Then they should use cute names like Guido Fawkes or Ronald Hammerdinger– XO has enough problems already without a bunch of anonymouses running around confusing everyone.

    • Anonymous says:

      Do you think grivner lands another CEO job?

  • Guido Fawkes says:

    What’s the word on CEO search?

    • en_ron_hubbard says:

      Hi Guido,

      The search is a difficult one. One physical characteristic required of the CEO is as follows:

      “You must have no spine and a hole in your back large enough for our Chairman to insert his finger and manipulate you, much like a finger puppet. You should also be aware that the job comes with no equity prior to the removal of all minority shareholders”.

  • Hammerdinger says:

    I think anon that referenced R Reagan was referring to “I Can’t Recall”. Grivner could spend years fighting CI if he implicates him in colusion. CI didn’t get where he is today getting his hands dirty – love him or hate him he is extremely smart & knows how to play the game. Remember at 1 time he was a world class chess player. Guys like him are pros at walking the line with the help of
    extremely smart guys like Mark Weitzen & other attys that know the rules.

    • en_ron_hubbard says:


      Reaguns hadn’t written it all down which is a huge aide memoire. If he had swapped emails with the Treasury Secretary regarding Ollie North’s activities then history would be different.

  • John L says:

    This company is in shambles. Its got a completely dysfunctional leadership team who is all over the board specific to strategy – focus on mid market enterprise that they’ve obviously had much success in over the last 2.5 years or revert back to the low margin, terrible smb business that won’t do anything but hurt the business further while milking carrier as long as possible until it dies. It has a completely disengaged board of directors that isn’t interested in helping the company through the most difficult time ever by hiring a new CEO quickly rather delaying as long as possible presumably to depress the value of the company further to make the buyout offer appear legitimate, and its got folks on this board who like to place conjecture on what can and should be done specific to the legal actions underway.

    A couple of points to make: (1) the courts will not stop the merger unless there’s something specific to show that icahn and or his hand selected board has committed a criminal act. I’m sorry folks but nothing has surfaced rising to that occasion so this isn’t likely a scenario. (2) until there’s a leader in the CEO position who is not afraid to stand up and lead as well as firing the CFO and SVP of Regulatory this company will continue to suck much wind as those leaders in XO save for Ernest Ortega and the other one leading the enterprise team are replaced. (3) Even with a new CEO the company needs to be sold to another telecom company or the company needs to buy another telecom company – either way if nothing is done its going to be irrelevant b/c it won’t be able to sustain itself as a going concern b/c it won’t keep up technologically, product and services, etc. (4) one can’t wonder if at some point a RICO investigation might begin at the federal level but i’d suspect it would be hard to prove and that the FBI has more important things to focus on.

    How about icahn doing something ironic for an act 2 …. hiring one of the soon to be released senior leaders from Global Crossing who once wanted to purchase XO and turn it something valuable. No matter what anyone on this board thinks about the leadersrhip at Global Crossing (in spirit of disclosure i think they are mafia like) they have managed to sell for a premium one of the most hated companies in telecom given its massive bankruptcy years ago despite the odds that company might have faced. It amazes me that no one could possibly do the same for XO. whomever above suggested icahn is waiting to sell …. he or she might be onto something …. either way .. its not going to be much of anything until that transaction happens.

  • Anonymous says:

    Very well put, I agree with your thinking.

  • schmuckinsurance says:

    So this merger was declared effective contrary to other reports I had seen. Hopefully this chapter isn’t over. I guess today was the last day it had a live trade.

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