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Technology Stocks : Excel Communications
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To: Charles Holcomb who wrote (2710)6/15/1998 8:44:00 PM
From: Rob S.  Read Replies (1) of 2806
 
This looks like a good strategic move for Excel but the details are a bit puzzling. It looks like Kenny T. and Excel are in a minority position in which control over the company is ceded over to TGO. It may not actually work out that way because Kenny T. still holds the largest block of consolidated shares. BCE owns 16% of the combined companies with an option to purchase another 4%. It is also investing $264 million into ECI for a 7.8% stake. I'm not sure if that 7.8% is already figured into the 16% of the combined companies or is additional. From this it looks like BCE will end up with the largest block of stock. But BCE is unlikely to want to take that much direct control on the operations, giving Kenny T. potentially great influence over the combined assets.

This deal may not seem like a good one from the perspective of how much value ECI shares have gotten in the "share swap" with TGO. Although I think Excel may have gotten more, the company probably has felt a growing need to merge with a company that is well positioned to expand services on a global scale. The industry is undergoing consolidation in which small players have reduced chances to compete effectively. Excel is not a small company in terms of sales volume but is still vulnerable in terms of the global competitive environment. This merger will provide Excel with an immediate foothold in 16 foreign markets with several others to be added soon. This also propels Excel into the international internet marketplace as the provider of the third most extensive backbones in the world.

The stock may drop for another couple of days but should trend up afterward toward around 25. Where it goes from there will depend on how well the merger goes and the prospects for new products and markets and increased sales and profits.
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