Some analysts have expressed concerns that much of 360's cash flow was from one time sales of dark fiber. What the analysts have apparently not modeled into 360's business plan is the migration to services. The telco's who bought the dark fiber must pay to get it lit, and pay monthly fees to keep it lit and hooked into trans oceanic landing stations, city rings, co-location facilities, switching, and for connectivity into the remainder of 360's network. Who are the dark fiber buyers going to obtain these services from? Obviously its 360. The fees for these services are ongoing and the customers are captive. 360 networks will become a cash cow. The telcos are to 360 what tv cable subscribers are to a cable company like Rogers. Once the banks and brokerages see that 360's business model has been validated by the cash flow, they will jump back in with both feet.
Today we see that the financial institutions such as CSFB who once owned as much as 33 million shares and underwrote $700 million in notes have sold their entire stock position, are shovelling the notes out the door at 10 cents on the dollar and are selling short term bank debt for $.43 on the dollar. Obviously at this time, 360 now has no brokerage, institutional or bank backing. Just because the brokerages and financial institutions have bailed doesn't mean they are correct. In any other situation where major share holders and management didn't have the ability to underwrite addition capital themselves and owned significantly less than 50% of the voting stock, I would be very concerned, but not in this case. Its the selling stampede started by CSFB that got everyone running for the door but not knowing why, other than everyone else is running. The stock has intrinsic value as each share has a vote and well over 50% of the voting shares are held by major share holders. The stock also has a positive net asset value estimated at least US$2.50/share plus an enterprise value(now at zero) that will start growing by leaps and bounds in 2002. If you valued the 360 assets in the ground at the same inflated costs that companies like GX had to spend on build outs, you could almost triple the share value of 360. Hey...maybe that says something about GX eh? Like maybe the leverage on GX's balance sheet is much worse than most imagine. Bottom line is that investors are acting like leemings jumping off the cliff, instead of carefully considering all the available facts. As an aside, merging with a highly leveraged company with outdated, non scaleable fixed assets like GX would be a disaster for 360.
Markets aside, IMO, 360 has sufficient infrastructure in place with fiber sold or to be sold or leased, all with built in monthly "cable fees" for connectivity, switching and lighting, to make it through the downturn and their revised business plan and infrastruture build out. Also, no hostile takeover is possible as major shareholders own and control over 50% of the voting shares. I expect major shareholders must/will also provide the $300 million neeeded under the existing business plan so that change in control provisions attached to the existing senior debt are not triggered. The checks will be written and 360 will succeed.
At some time in the future, we may see consolidation among the long haul cable companies or buyouts by larger telco's. As 360 is controlled by the major shareholders and has less balance sheet leverage than the other cable companies, it seems reasonable that it will be one of the survivors or may someday be sold, but on the major share holder's terms.
Here is another comment: I see that Alcatel only received 700,000 preferred shares for the $700 million they paid. Looks like Alcatel will be getting a big haircut on the preferred shares. No wonder they took a $200 million write down. Why didn't they take a larger write down? Do they have confidence TSIX? I think so. Also, it shows that Maffei is one heck of a good deal maker. We are in good hands here and the company is well managed.
regards,
teevee
PHPI |
