If you back out of GX's market cap the part that is composed of AX, you are left with about $3.5 bln. Now, even significantly discounting the worth of the fiber network, equipment, real estate and other assets they are still worth more than $0. Certainly worth more than $3.5 bln. In which case, the market is telling us in no uncertain terms that they see the enterprise value of GX as less than 0, LOL! The debt, conservatively speaking (counting only bonds, bank debt etc., not preferred shares), is some $7 bln. The stock is trading below that level - market cap is hovering at $5 bln. That is over a $2 bln. gap. When this happens, the market is saying: complete loss of faith. What will matter now, is where this settles. First, where the stock will close today, and then how the reaction will play itself out over the coming days. Once all the portfolios and positions are adjusted, we'll get a clearer picture of what GX shareholders are left with.
Of course the "funny money" of capacity swaps with LVLT is a point of great concern in the way it is accounted for in real $ and cents. Both LVLT and GX could be using that as a sort of accounting trick to make themselves look better. Sort of as if you and your friend passed notes between yourselves: "I hereby give you $10 bln" "And I in turn give you $9.9999999999 bln." The net transaction is $0.0000000001 bln., or about $1 in real money. Might make two bums look like they are making multi-billion dollar deals, while in reality they are passing the same buck back and forth, net-net.
Looks like the market is saying BK. It is our job as investors to decide if the market is right. I'm going to listen to the CC (haven't had a chance yet), and crunch all the numbers from the release, and then decide. What is the scenario wrt earnings/revenues shortfalls under which GX would default? Do they need extra $ to survive (shades of LVLT-like shareholder dilution w/ an extra offering etc.)? How is their business in fact doing (MNC contract wins, new business revenues etc.)? What do prospects look like, given a possibly rotten economy through 02-03 (as I personally expect)? Lots of questions, few answers so far. May take the weekend to do the dd. Perhaps if we all put our heads together we can come up with some answers.
Morgan |
