Buddy,
Nobody has said that Liberty wants to 'trade in their' NTOP shares. It didn't come about that way.
Net2phone is controlled by Howard Jonas and IDT. IDT and Liberty Media own NTOP Holdings (which was set up after IDT and Liberty bought back AT&T's ownership position in NTOP), and NTOP Holdings controls Net2Phone. IDT and Liberty also of course already held positions in NTOP.
Thru NTOP Holdings, IDT currently has the right to vote the shares of Class A stock held by NTOP Holdings (greater voting power than the shares of common stock held by retail shareholders). IDT also owns Class B stock (same as retail).
They agreed that IDT gets to make most of the decisions, but that lapses to co-control.
As of December 31, 2004, Liberty Media and IDT each have the right to dissolve NTOP Holdings. If either elects to do so, IDT will no longer have majority voting control over Net2Phone, but will still be in a position to influence management and operations through significant stock ownership, extensive business relationships, and interlocking boards of directors (some of same people on the boards at ntop and idt, including howard jonas). If NTOP Holdings is dissolved, Liberty Media would obtain significant voting power over NTOP, and would also be able to exert significant influence over ntop management and operations.
Most of NTOP's income is vis a vis IDT, and IDT provides them with a global network, etc. -- with no agreements in writing about that. IDT could pull it. IDT can't compete in cable telephony.
So IDT went to Liberty Media with the proposal -- they would rather have control and have that specified; Liberty didn’t do the approaching.
I emailed Sarah Hofstetter, a senior v.p. at NTOP, at NTOP about 3 weeks ago, and her response essentially was that what Liberty would do hadn’t been determined at that time -- it wasn't pre set-up.
Liberty has been setting its business holdings – so that Liberty isn’t so much of a ‘mutual fund.’ Liberty looks for verticality -- it owns something, which owns something, all of which support operations. But it's not black and white, if Liberty wants something more from ntop, i.e., sees that it might have a use for Ntop it hasn't structured to this point because of things changing at Liberty. Liberty is changing.
Jonas’ proposal is to give Liberty 17% of IDT, instead of the 14% it currently holds. Jonas isn’t forking over cash, he’s minting IDT shares. IDT and Liberty have always good working relationships -- Jonas and Malone see eye to eye.
Sarah H. said that it was a housekeeping issue.
(Several weeks earlier in response to a question from me, she said “it simply wasn’t so” that IDT and Net2Phone were merging (a poster on the Yahoo ntop board said he had been told that by someone in the Call Center).
However, just prior to this move by IDT, there was a move by Ntop to set up a little more independence, with some IDT people leaving the NTOP board of directors. Not the 'big guys' though. This has to make you take a second look at 'independence' -- but ntop has never been independent. We have to see what happens next -- they expect the payoff finally in cable telephony, and have a new, young ceo to work thru that.
There is no way of knowing what is going to happen, at this point. Probably Liberty does it – but maybe not. The companies simply get along. So can’t tell.
Some long-term and quite knowledgeable posters about Liberty in a Yahoo group were posting that Liberty's actual interest is in Net2Phone; always has been -- even though they haven't done anything. That 'holding company' concept again. For example, Liberty Media International is the only tier 1 international cable mso, but LMI only owns 100% of a single cable mso -- the one in Puerto Rico where Net2Phone did its first cable telephony deployment. [Liberty though apparently is in the process of changing that; Malone is CEO of LMI he says for another 6 months, then is is going back to Liberty Media itself (LMI is a summer 2004 spinoff), breaking off another piece, and CEO-ing that].
In the middle of this year (just after Liberty spun off Liberty Media International) Liberty grouped several of its stock holdings into a new group -- tech/ventures; IDT and NTOP are both in that group; as is a company that does global positioning, and a company Liberty owns shares in that does broadband over powerlines. So Liberty may have another plan.
Liberty has also bid on cell phone towers that Sprint (before the Sprint/Nextel deal) decided to sell, and lease back. Liberty owns tons and tons of Sprint shares. That could be a tax write-off; it also generates over a billion in cash a year. It could come to be something more re BPL, or wi-fi. IDT of course owns WinStar (wi-fi). But that all involves looking at puzzle pieces. Doesn't mean it goes together, but it could.
IDT wants liberty to exchange its Ntop shares for IDT shares; IDT wants 'control' over ntop - probably because that gives them all the tax writeoffs – they can write off expenses of the Ntop subsidiary if they hold ownership control, and there will be costs coming up related to rollouts.
The new CEO at Ntop (Lior Alroy) was the Senior Vice President of Strategic Initiatives at IDT. What I think he essentially did is close terms on deals. He was also the person at IDT who oversaw what was going on at Ntop (particularly cable telephony deals, not so much the Global Services (retail) division. The last NTOP conference call was his first as CEO – and he was a call in to that call. I actually have a feeling he and Greenberg were at Liberty – taking IDT’s proposal to Malone. He was a consultant to IDT for a couple of years, before they hired him as strategic initiatives senior v.p. So I think they see something in him.
It would though be quite interesting if Liberty altered the proposal.
Liberty’s new Tech/Ventures Group:
libertymedia.com
***
As to the minted shares of NTOP that go to the cable msos as incentive to accrue telephony customers. I actually think that is probably a good idea. Of the ways NTOP has minted shares over the last year, that one actually has a payoff. Vonage is spending $75 million in just 2005 on PR advertising just to get customers. So far NTOP has minted 5 million shares to go to cable msos as they reach certain cable telephony customer target levels. The mso has to pay for those shares at approx. current share prices. There isn't any advantage to them to buy those shares unless the share price actually has increased. Ntop minted 5 million; and have used just over 3 million. For the three million shares, NTOP gets back approximately $12 million. Ntop gets some funding; it could be an incentive for the cable mso. You have to remember that the mso does all the marketing for voip customers -- ntop doesn't. Ntop needs them to be aggressive. There will though be more shares allocated to cable msos for this purpose. A dilution, but something comes back in this case to shareholders. And at some point, there will be news releases about NTOP having additional investors.
Cable, bundling, and voip has less churn. Ntop has a better chance of keeping many of those incentive-based telephony customers. Vonage will spend the $75 million, and still face churn.
So I'd personally like to see a counter-proposal and agreement from Liberty, to show they indicate an interest. That IDT's proposal isn't simply sufficient. But it's all behind closed doors, and what you think you are seeing isn't necessarily what strategies they discuss. The good thing though is that idt and liberty talk about ntop -- and the relationship doesn't just sit there. And it's been suggested Jonas has something else in mind -- but that is speculation. You can't really tell at this point. What he has in front of him -- all the tax writeoffs -- is sufficient for him to try to do this. There is also a question about whether IDT will itself move to voIP, like other traditional telecoms. NTOP and IDT have discussed it (mentioned in last conference call, with no suggestion there was an outcome). Again, they are not about to let on how IDT sees it, but IDT did list a new postion as a voIP project manager this month -- to scope out issues related to voip, networking, and profit and loss. Like AT&T, IDT also had agreements with the bells to route traffic, and the bells get to raise those rates per the FCC. That is what drove AT&T out of the local loop business. |
