Unhappy shareholders try to force GST Telecom out of bankruptcy
6.16.2000
Plan will likely meet opposition from potential buyers and creditors
by BILL STEWART, VBJ Staff Reporter
A growing group of disgruntled GST shareholders has announced
plans to file a motion to dismiss the company?s bankruptcy
petition.
If the shareholders succeed, they say they?ll also try to
oust the company?s board of directors and acting chief
executive officer Tom Malone. The shareholders then plan to
seize control of the company and attempt to reorganize.
GST filed for Chapter 11 bankruptcy protection on May 17. At
the same time, the company signed a letter of intent to sell
nearly all its assets to Time Warner Telecom for $450
million. That offer, which has since been withdrawn, was less
than half the book value of those assets.
Saddled with approximately $1.2 billion in debt and very
little cash on hand, GST had little choice but to seek
protection while attempting to reorganize.
Shareholders were outraged by the fact that GST agreed to
sell its assets in what essentially amounted to a fire sale.
There should have been enough interest in the company?s fiber
optic network to command a price closer to book value, many
of the owners said.
Apparently AT&T agreed with that opinion. Earlier this month,
the communications giant informed the U.S. Bankruptcy Court
of Delaware that it intends to submit a bid for GST?s assets.
But AT&T complained that the June 20 deadline for submitting
bids leaves too little time to assess the value and condition
of those assets.
The mere presence of AT&T in the bidding process made some
shareholders wonder whether Malone and GST?s board acted too
quickly in accepting Time Warner?s offer. The leader of the
shareholder revolt declined to comment on the record, but
several shareholders who communicate on the Yahoo message
board were outraged that GST settled for so little.
They?re also upset that GST allegedly turned down an offer to
sell the company for $22 per share. The offer, which the
Portland Business Journal said was made some time during the
last year, would have valued the company at $834 million.
Although $834 million looks appealing compared with the
amount Time Warner offered, it still would have been less
than the value of GST?s network and would have left the
company nearly $400 million short of paying off its debt.
That, of course, would have left nothing for the shareholders.
If the court agrees to dismiss GST?s bankruptcy petition, the
shareholders will have to find some way to keep the company
running. Two months before announcing its bankruptcy plans,
the cash-poor company hired Solomon Smith Barney to search
for financing, but those efforts proved fruitless.
The petition to dismiss would likely face challenges from any
potential buyer and probably even some of GST?s creditors.
At least one creditor, NTFC Capitol Corp. (an affiliate of
Nortel Networks), has become actively involved in the
bankruptcy proceeding. NTFC, which owns $45 million of GST?s
debt, complained at a recent hearing that the proposed sale
procedures are too restrictive and slanted too much in favor
of Time Warner.
NTFC also claimed GST had failed to evaluate alternatives,
including shopping itself to other buyers, and failed to
perform a valuation of its business to determine the fairness
of Time Warner?s $450 million offer.
After reviewing the proposed bidding procedures, NTFC accused
GST of ?paying lip service to the notion of a competitive
auction.?
If not for AT&T?s impending bid, the idea of an auction might
have been moot. But, with plenty of margin between Time
Warner?s bid and the value of GST?s assets, AT&T apparently
saw an opportunity to cheaply beef up its network.
However, AT&T already has a substantial West Coast presence,
where GST?s network is located, so ?I?m not sure why AT&T
would want it,? said AG Edwards analyst David Heger. ?But if
you can get it below the book value, that?s clearly cheaper
than building it yourself.?
Source:
vbjusa.com |
