Shareholders Get No XO From Icahn
By MARTIN PEERS, Wall Street Journal
Where is Carl Icahn when shareholders need him?
At XO Holdings, he is the one in control. And judging by the value of his offer on Friday for XO's shares outstanding, he has learned something from the incumbent management teams he is often battling.
Mr. Icahn is offering 55 cents a share for the roughly 47% of the stock he doesn't own. While that is double XO's Thursday market price, it understates XO's true value by a considerable margin.
Consider: peers Level 3 Communications and TW Telecom are trading at roughly 1.9 times revenue to enterprise value. That would imply an enterprise value for XO of $2.8 billion. XO has about a billion dollars in preferred stock, most of which is held by Mr. Icahn and convertible into common stock. Assuming conversion, and factoring in net cash and securities of $391 million, implies an equity value of about $4.80 a share.
Alternatively, take seven times earnings before interest, taxes, depreciation and amortization, which is between where TW Telecom and Level 3 are trading. XO is then worth about $1.50. But XO's Ebitda margin, at 7.3% last year, is low -- Level 3's was 23% and TW Telecom's was 33%. If a buyer could boost the Ebitda margin to 20%, it would value the stock at $3.58.
As the owner of telecommunications infrastructure and wireless spectrum, XO could be a valuable asset for a big phone company. Mr. Icahn, who dropped a previous attempt to buy telecom assets from XO after shareholders' opposition, undoubtedly is aware of this. If he wants to retain his activist credentials, he should cut the public holders of XO in on some of that value.
Write to Martin Peers at martin.peers@wsj.com |
