Well, it took six months, but the board of directors at XO Holdings (news, filings) finally responded to majority shareholder Carl Icahn’s crazy bid of $0.70 back in January for the common shares he didn’t already own. They did get a higher price than that original bid, agreeing to $1.40 per share plus contract rights to a share of the proceeds if Icahn sells the company within a year.
This was always the most likely scenario, with a higher negotiated price but no apparent actual bidding process. The company hired JP Morgan Chase back in April to advise it when Grivner left and there were rumors to the effect that third parties might be kicking the tires. But in the end Icahn had always said he wanted to buy but wasn’t at all willing to sell.
While $1.40/share is a premium of 109% above the current share price it will likely not satisfy the minority shareholders of the company who feel the thinly traded stock has been artificially depressed. $1.40/share corresponds to an EV of $1.124B and a trailing 12 months EV/EBITDA multiple of about 5.7. Icahn owns 91.76% of voting shares, and hence can close this deal without a vote – although the plaintiffs in several pending lawsuits are sure to ask the judge to stop it.
While most of XO’s revenue derives from the more traditional CLEC business, the company has extensive fiber assets including a national fiber backbone that derives from the original Level 3 build as well as 9000+ metro route miles hooking up 3300 on-net buildings, mostly in the downtown areas of a few dozen major metro areas. In the past few years, they have focused more and more of their efforts on leveraging that fiber, seeing some success.
Icahn’s main interest in XO has always been the tax benefits of its net operating losses. By acquiring the rest of the company he can fully separate the NOLS from the business, and then later sell off the assets. Or, he could decide to run the company and use it as a consolidation platform – although if that were his aim I think recent history would have been quite different.
If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!Categories: CLEC · Mergers and Acquisitions · Metro fiber