[Global Telesystems Counters Analyst's Bearish Comments]
NEW YORK -(Dow Jones)- Shares of telecommunications company Global TeleSystems Group Inc. shares fell 20% Monday after Bear Stearns & Co. lowered the company's revenue estimates, saying the company has underestimated its competition in Europe.
But not long after Bear Stearns analyst James Henry cut his outlook for the third quarter and the year, Global Telesystems' president doubted the analyst's conclusions and even the veracity of his report.
Regardless, shares of Global TeleSystems (GTSG) closed down $5.438, or 20%, at $21.25. Volume was heavy at 37.5 million shares, compared with a daily average of 2.9 million.
In a research note, Bear Stearns analyst James Henry cut his outlook for the McLean, Va.-based company's results to $220 million from $230 million for the quarter and to $850 million from $875 million for the year. He said he drew his conclusions "following a conversation with the company's management on Friday."
The revised estimates came as a surprise to Global TeleSystems Chief Executive Brian Thompson. In a conference call Monday afternoon, he said he thinks the company is more valuable than it was three weeks ago and is "concerned" about the timing and context of the Bear Stearns report.
Thompson also said he found it highly unlikely that Henry reached his conclusions by speaking to Global TeleSystems management.
In the report, Henry said that even as Global TeleSystems positions itself to become a leading telecommunications provider, the company has underestimated the European competition. He said existing providers in France and Germany - France Telecom (FTE) and Deutsche Telekom AG (DT) - have affected national and long-distance pricing more than Global TeleSystems anticipated.
Though based in the U.S., Globably TeleSystems operates entirely in Europe and Russia.
During the conference call, Thompson responded by saying these European companies are practicing "irrational pricing" as they face the first phase of telecommunications competition.
"There will be more frequent cuts where competition is slower," Thompson said. "The larger price cuts that were taken by Deutsche have not recovered sufficient revenue... In France, the cuts will take its time to work its way to volume increases.
In its quest to grow into a leading European telecommunications provider, Global TeleSystems has been snapping up companies left and right. In the past year, it bought Esprit, InTouch Telecom Belgium N.V., NetSource and French concern Omnicom.
Henry, who maintains his "buy" recommendation on the company, said Global TeleSystems is struggling to integrate its recent acquisitions. In fact, rumors swirled Monday on Internet chat boards that employees upset about the recent acquisitions contributed to the stock sell-off.
"That's nonsense," Thompson said in his conference call, adding that mergers rarely proceed smoothly. |
