(COMTEX) B: Newark, N.J.-Based Phone Service Provider Inks Deal to Cr B: Newark, N.J.-Based Phone Service Provider Inks Deal to Create Potent Alliance
May 01, 2001 (The Star-Ledger - Knight Ridder/Tribune Business News via COMTEX)
-- IDT Corp., best known for inexpensive long-distance phone service, is looking to make some local stops.
Taking advantage of the economic shakeout in telecommunications, the Newark-based company is trying to breathe new life into two fading upstarts, Teligent Inc. and ICG Communications. Both companies provide local
communications hook-ups for businesses, in addition to other services, but either have run out of money or are almost tapped out.
Cash isn't a problem for IDT. It is sitting on $1 billion from AT&T's investment last year in its Internet phone subsidiary, Net2Phone.
The company also doesn't lack connections. IDT was able to take one-third stakes in both Teligent and ICG two weeks ago as part of a broad alliance with Liberty Media Corp., the media and entertainment holding company run by deal-maker John Malone, according to filings IDT made with the Securities and Exchange Commission.
That alliance bore fruit yesterday, when IDT named two of its top executives to run Teligent, a Vienna, Va.-based company that uses wireless technology to provide voice and data connections to some 35,500 small and medium- sized
businesses.
Yoav Krill, who oversaw IDT's operations in Europe, will become acting chief executive of Teligent. The chairman's post will be held by Howard Jonas, the founder and CEO of IDT.
The changes spell the end of the road for Alex Mandl, who served as Teligent's chairman and chief executive since its inception more than four years ago. The former No. 2 man at AT&T Corp., Mandl agreed to step down once IDT came into the
picture.
IDT already controls three seats on Teligent's eight-member board, and is looking to tighten its control by buying out other major stockholders, including a group led by the private equity firm Hicks, Muse that holds one seat.
Teligent remains in perilous financial straits. It only had $194 million in cash as of last month, and expects to run out of funds by the third quarter.
The company's bankers agreed to an 11th-hour extension of its credit agreement yesterday. Teligent must come up with $250 million in vendor financing and $100 million in convertible notes by May 15 or risk default on its loans.
ICG, based in Englewood, Colo., is in even worse shape. It filed for Chapter 11 bankruptcy last November.
While IDT faces considerable risk in trying to revitalize both companies, the payoff could be big, analysts say. Teligent owns valuable radio licenses for its wireless technology in virtually all of the nation's major markets, and has partnerships in Europe and Asia. ICG's network reaches 30 metropolitan cities, principally in the western and southeastern United States.
Link those systems to IDT's network, and it adds up to a potent rival to the regional Bell companies, who control most of the local phone market. Best of all, it would come cheap, analysts say.
"That's how they operate," said Andrew Sidoti, an analyst who follows IDT for William Smith Special Opportunities Research Co. "They're really in a good position to buy telecom assets very inexpensively."
There's another wrinkle to IDT's play for Teligent and ICG -- it could yield substantial tax benefits. The Net2Phone deal with AT&T exposes IDT to hundreds of millions of dollars in deferred tax liabilities.
"There may be some tax benefits for IDT, depending on how the deal's structured," said Riyad Said, an analyst for Friedman, Billings, Ramsey & Co.
But IDT spokesman Gil Nielsen said the company was buying into Teligent for its technology.
"This is not a tax play," he said.
(my words) "yeah, right Gil, wink wink".
The strategic alliance between Liberty and IDT goes well beyond the interests in Teligent and ICG, which Liberty contributed for shares in IDT's investment arm, according to the SEC filings. The two companies agreed to co-market prepaid calling cards and long- distance service to the Hispanic market, and to use Internet phone technology from Net2Phone -- IDT's spinoff -- on Liberty's cable
systems in Europe.
Liberty also has the right to invest in IDT Telecom, one of IDT's two major operating groups, immediately prior to any initial public offering of the unit. IDT's other major unit is IDT Ventures, which includes the company's investment
in Net2Phone, and, among other things, its Internet television unit.
Teligent shares rose 22 cents to 69 cents a share at the close of regular trading, up almost 47 percent. IDT gained 24 cents to close at $21.65. ICG has been delisted from the Nasdaq.
By Jeff May |
