Will IDT Dump Telecom Next?
By Martin C. Daks - 11/5/2007
NEWARK
njbiz.com
IDT Corp. has sold off pieces of its international telecommunications business and a chunk of its entertainment operations over the past 18 months. Now the Newark-based company may be planning to put its core 1,400-employee telecommunications business on the block.
When it unveiled a new compensation program for executives of the telecom unit two weeks ago, IDT said the program “provides for sharing with Telecom management positive cash flows generated by the businesses they operate or develop, as well as proceeds from monetization of assets and growth created …”
The term “monetization” generally refers to the process of cashing out, or selling an asset. “Language like that usually means a company is planning to sell a division,” says Donna Jaegers, the director of research at Janco Partners Inc., a Colorado investment banking firm that follows IDT.
“Because the company would be asking Telecom’s directors to help sell their own division” and thus put themselves out of job, “offering to give them a cut of the proceeds would help to keep them from jumping ship,” Janco says.
She says sale of the division would be consistent with the company’s practice of building up businesses and then selling them off.
In a conference call last week, IDT founder and chairman Howard Jonas noted in response to a question that “telecom is a business, not a religion,” and said he would consider an appropriate offer for IDT’s telecom operations.
About 800 employees in New Jersey work for IDT Telecom, which sells prepaid phone cards, consumer phone services and wholesale phone services, according to Jonas. The unit accounted for about $1.7 billion, or 86 percent, of the company’s $2 billion of sales in the fiscal year that ended last July.
IDT posted a $139.4 million loss from continuing operations for the fiscal year. But it recorded a $198 million gain from the sale of some businesses, resulting in a net profit of $58.6 million.
The previous year IDT lost $178.7 million on sales of $2.2 billion.
Jaegers says IDT could plow proceeds from a sale of the telecommunications business into initiatives like IDT Carmel, the company’s Israeli-based debt collection arm.
IDT was mainly known in the late 1990s for its prepaid calling card and Internet telephony, or VoIP, services. It then branched into activities ranging from radio stations to animation services to energy distribution.
IDT sold a stake in Net2Phone, its VoIP subsidiary, to AT&T and other investors for $1.4 billion at the height of the dot.com bubble in 2000. IDT last year bought back the stake for $94.6 million.
“For the past few years, IDT’s stock was supported by the company’s large balance of cash,” says Jaegers. “But IDT has put a lot of money into its debt-collection business, and I think the market is concerned about the burn rate” at which IDT is using up cash.
IDT stock traded around $8 a share on the New York Stock Exchange last week, down from a 52-week high of nearly $14 in March.
“Historically, prepaid phone cards have generated the lion’s share of cash for IDT,” says Jaegers. “But the company has lost market share to other prepaid businesses, which Jonas claims are undercutting IDT by charging less for phone time and then delivering fewer minutes than the customer paid for.”
Last March, three of 13 companies that IDT had sued over the alleged practices settled the complaint by agreeing to deliver “100 percent of the minutes promised to consumers,” according to a statement from IDT.
In a research note titled “IDT Corporation: Can It Get Any Uglier?” last month, Jaeger predicted falling earnings for the company’s energy business and said competition in the phone-card industry would further dampen IDT profits.
Jonas dismisses such concerns and says he will continue to create and shed IDT divisions. “We’re opportunistic,” he says. “We build businesses and then we monetize them.” |
