Article dated 22 May 2000...
bizjournals.com
From The Business Journal
GST's board rejected three earlier offers
Dan McMillan Business Journal Staff Writer
GST Telecommunications Inc. may have passed up several
chances to avoid a fire sale. Instead, it gambled on a
turnaround, and lost. Now, it is being sold through
bankruptcy court for far less than it might have realized
even as recently as 10 months ago.
A pair of highly placed former GST insiders said the board of
the Vancouver company entertained, and then rejected, three
purchase offers made between July 1999 and January 2000. One
of the sources also said former GST chief executive Joe
Basile had arranged for equity financing, only to have the
board reject that deal as well. That disagreement led to
Basile's resignation earlier this year, the source said.
Current chief executive Tom Malone declined to comment
directly on whether the company had held serious discussions
with other companies. He joined the company in November 1999,
coming aboard as chief operating officer.
"I wouldn't say people haven't expressed interest in GST,"
Malone said. "I wouldn't be prepared to say people have made
offers. I will tell you that $1.2 billion in debt is a load
to swallow."
Instead of finding a suitor, GST announced Wednesday morning
that it had filed for Chapter 11 protection in U.S.
Bankruptcy Court for the District of Delaware. It also said
it had signed a letter of intent to sell its assets to Time
Warner Telecom Inc., a company 48 percent-owned by media
giant Time Warner Inc.
The $450 million cash deal likely will leave GST's
shareholders out in the cold, said analyst John Hodulik of
Paine Webber in New York City, and Gunthe Karger, a portfolio
manager with the Miami-based Discovery Group.
"There will be little, if anything, left over for the equity
holders," Hodulik said.
"It's a bad thing for the shareholders, of which I'm one,"
Malone agreed.
It would have been a different story had GST accepted a
purchase offer. The offers ranged in price from $22 per share
to $12 per share and were made between late-July 1999 and
early this year, the sources said.
During that time frame, GST's stock went from around $15 per
share to $10 per share.
The board may have thought the offered amounts didn't give
GST full value for the $900 million telecommunications
network it had built. At $22 per share, GST would have been
valued at $834 million, and at $12 per share, the value would
have been $454 million.
Now, GST and its assets will be doled out by bankruptcy
court.
The decision to file for bankruptcy protection was made
during an early morning board meeting held May 10, Malone
said. The company found that Heller Financial Inc. was
willing to provide up to $125 million in debtor-in-possession
financing if GST filed for bankruptcy, Malone said. Heller
receives a secured interest in certain assets in exchange, he
said.
Plus, Time Warner Telecom made it clear it was only
interested in assets, Malone said. GST and the potential
acquirer have been holding discussions for about two weeks,
he said.
Although the Time Warner Telecom deal doesn't appear to do
much for GST shareholders, it's a great deal for the
acquirer, Hodulik said. The offer price for the assets is
about half what GST spent to build the assets, he said.
"The value of a company is determined by what somebody's
willing to pay for it," Malone responded.
It's possible that GST could become the target of a bidding
war if another interested buyer stepped forward, Hodulik
said.
For its part, Time Warner Telecom isn't saying much about its
proposed new acquisition. The Denver company has only signed
a letter of intent and must await bankruptcy court and
federal and state regulatory approval, completion of due
diligence and the completion of a definitive agreement, said
Bob Meldrum, senior director of marketing and communications.
Meldrum would not release details on which assets Time Warner
Telecom will purchase and what kinds of issues could derail
the deal. The proposed acquisition is a way for the company
to accelerate its geographic expansion into California and
the West Coast, he said.
Time Warner Telecom currently operates its network in 21
markets and plans to add eight to 12 markets this year.
The company finished 1999 with $269 million in revenue,
compared with $322 million for GST. Unlike GST, Time Warner
Telecom appears to be moving toward profitability.
GST finished 1999 with an operating loss of $100 million and
a loss before interest, taxes, depreciation and amortization
of $21 million. The local company's net loss was $182
million, or $5.11 per share.
Time Warner Telecom, on the other hand, had an operating loss
of $31 million and earnings before interest, taxes,
depreciation and amortization of $37.8 million. Its net loss
was $89.2 million, or 93 cents per share.
The potential buyer also has more cash available, $90.5
million compared with $20 million at last count for GST, and
less long-term debt, $404 million compared with $1.2 billion
at GST.
Malone has maintained all along that Chapter 11 isn't the end
of the world for GST. While he said it was still possible the
company could emerge from the process as an independent
company, being absorbed by another firm also is not a bad
outcome.
Although Time Warner Telecom hasn't indicated its plans for
GST employees and offices, Malone said the fact the company
has a very small West Coast presence could mean the company
would leave some of GST's corporate structure in place. |
