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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