What’s Next for Icahn and XO?

July 15th, 2011 by · 21 Comments

Ok, seeing as it’s Friday and this week’s largest discussion topics have focused on XO, I’m going to use a post to take a stab at answering a question posed by a reader about Icahn’s latest move on the company:

Rob, How do you see this whole thing playing out from the merger, to possible suitors etc…effects etc…

I don’t have a crystal ball and have been wrong in the past about XO’s and Carl Icahn’s respective futures, however here are a few thoughts anyway:

  • The chance that minority investors will be mollified by $1.40 is effectively zero.  They will ask the courts to intervene (soon if not already), and whether or not the judge agrees will be the next question to be resolved.
  • If the judge steps in, then things get messy quickly.  The obvious way out would be for there to be an auction of some sort, but there’s lots of bad blood involved between the two sides so don’t count on it.
  • If the judge declines to step in, then Icahn will swiftly push through the deal – and minority investors will probably have to switch to demanding payment for damages rather than rolling back the clock.  Too much water under the bridge at this point I think.   Left unhindered, Icahn will wait a year, separate the NOLs and sell off the rest.
  • I do not expect any other suitors to come forward and publicly challenge Icahn’s current offer unless they are actually invited to do so.  It’s just not in their interest to do anything other than wait for him to finish whatever it is he is doing.  After all, if they really want to buy XO at some point, then he’s the guy that will have to say yes.  No sense in pissing him off.
  • In the meantime, XO’s Q2 results and perhaps Q3 guidance in a few weeks will be interesting to watch.  The company still has very little cash but is at a stage where it needs to spend to grow – something they acknowledge each quarter.  Lots of great people there that don’t want to be part of a soap opera, just take care of business.  XO has forsworn taking on public debt, but once again the credit markets look pretty favorable – perhaps they will change their mind this time around?
  • Unless Icahn completely switches tracks and puts real money into the company, hires a CEO that knows what to do with it, and gives him the freedom to do it, then all paths seem to lead to an eventual sale to a strategic buyer – which would obviously expose employees to layoffs.  The only questions then are when that happens and what shape they are in when it does.

That’s about as far as I can get.  Does anyone else which to prognosticate?

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Categories: CLEC · Mergers and Acquisitions · Metro fiber

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21 Comments So Far

  • Brian CZ. says:

    Thank you. Now that is what I call a response ; )

  • Brian CZ. says:

    The whole thing that confuses the hell out of me is WHY would XO complain about the L3 / GX merger? If they are going to be bought or be sold by CI it doesn’t make sense. Maybe XO has a partner already and it’s just not public yet?

    • Rob Powell says:

      That’s probably nothing to do with Icahn, but just business. XO and Level 3 have been going head to head in the past few years on a variety of subjects, ever since Level 3 objected to XO lighting their fiber. According to Wikipedia XO still has paid peering with Level 3 – they surely would like to get a better deal and don’t want to wind up with a worse one.

  • Anonymously says:

    I will hope your comment about CI placing money into company and hiring CEO comes true because I have alot of friends out of job if he does sell the company. I was an employee there for many years I recently left because company wasn’t the same. Plus I knew the writing was on the wall something was happening when Dan Wagner and the Senior VP of Human Resources left the company end of last year. Believe me when I say alot of people start taking real notice when Carl Grievner left the company. I just wish the employees luck and if layoffs do happen that they at least receive nice packages.

    • Anonymous says:

      Dan Wagner still at XO as of July 15 2011

      • Anonymous says:

        Whats really a shame is a bunch of the ignorant, incompetent leaders are still there. Folks like the CFO who is totally incompetent, the VP of regulatory affairs who is grossly incompetent remain. The BOD should fire them quickly before the new CEO is hired. If the new CEO is worth his or her weight in gold they will fire them post haste.

  • I think that XO wanted to get bought – maybe by L3, maybe by GC – and the comments to the FCC were sour grapes.

    The problem for XO is until they get the Leadership aligned with the marketplace, L3, GC, ELNK, C-Link will take business away from them.

  • BrianCZ says:

    @peter…they just signed the US Post office to huge contract…their sales are up. So i don’t see it. It’s all a huge cloudy mess and we are not going to see the end result for about 2 to 3 years…JMO.

    • Anon says:

      The Post Office Deal was a renewal folks….Less than 100k of new services

      • BrianCZ says:

        Actually it’s way more than that. I know 3 people that work there and 2 of them have told me they are turning up a few hundred sites a month and have been continuously. That’s way more than a 100K.

      • Anonymous says:

        Completely wrong. It was net new. 650k or so in new revenue per month. Get your facts straight.

        • BrianCZ says:

          My facts are from people that work there. Quit being an ass about it.

          • Anonymous says:

            No need to be a jerk. Your facts from your friends are incorrect. It was not a renewal rather a new deal for them. If you can’t take hearing the truth don’t post on these forums.

  • What is XO.
    Plz telll me.
    i have 3 years of experience in telecom.woking with NUTEK INdia as a sub vendor. Working with ZTE telecom INdia PVT Ltd, and presently i am working with Ericson INdia PVt. LTD.
    I like ur Notation and i am intrested with this subject.
    u can call me at xxxxxxxxxxx.

  • Wrong says:

    AT&T, Verizon and XO Communications Services Inc. have been awarded spots on a multimillion-dollar telecommunications contract from the U.S. Postal Service.
    Verizon Business Services was awarded a six-year, $186 million contract; AT&T won a six-year, $100 million contract; and XO Communications received a six-year, $45 million contract, according to award notices released Jan.5.

  • Anon says:

    XO and the US post office: A match made in Heaven !!

  • Definition of Hypocrisy says:

    “Icahn, Clorox’s biggest shareholder, said in a letter to the company’s board that shareholders should be allowed to decide whether to accept his offer or a potentially higher one from another suitor if it materializes.”

  • Intentionally depressing the stock price - Excerpt from Amended complaint says:

    Excerpt from the proposed fifth amended complaint
    Got to love #12 under the Summary of Action where they talk about intentionally depressing the stock price.

    Email from defendant Grivner to defendant Shea:

    “If you read the Preferred [Stock] 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.”

    XO’s ex CFO Freiberg to defendant Shea

    “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… 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 NOL’s.”

    I wonder what these Rat’s said after being deposed?

  • Anonymous says:

    This is some good news, but how will the courts see it is the ques ion. I admit XO is that gem that needs to be polished…….sometimes by a different owner or management

    They have a lot of new big long term contracts, as we know USPS is one. I wish I could go into detail for the others.

    Question is, how can you merge a company that has no common ground except Carl. Most companies merge to have a better business model or to complete as in the LVT/GLBC deal. XO has no debt….XO has no debt, which most companies you buy/merge comes with debt. Who wouldn’t want that type of purchase…knowing that all profit is around the corner, but this is a self dealing transaction to whom Carl.

    I’m praying Carl does the right thing……how much money do you really need to live off……maybe it the hunt (sport) that keeps him going.

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