Your guess as good as mine, could see 18 or 2,65. I say(hope)we go to 18!
Omnipoint Corp.
Dow Jones Newswires -- December 7, 1998
TALES OF THE TAPE: Omnipoint Seeking Partner, Seen For Sale
By Shawn Young
NEW YORK (Dow Jones)--The struggling Omnipoint Corp. (OMPT) may be for sale, say Wall Street analysts who are hearing that the company has asked Lehman Brothers Inc. to find it a buyer.
The Bethesda, Md., wireless phone company's search for a strategic partner has dragged on for 18 months, analysts said, and its last two quarters were a big turnoff to investors. The company's stock
recently traded at 8 7/8, far from the 52-week high of 30 it touched April 2.
A disappointing fourth quarter could send shares down another 15% to 20%, said one analyst who asked not to be identified.
But George Schmitt, president of the core Omnipoint Communications Services business, said he thinks the company is ready to show improvement and is still actively seeking a partner, not a buyer.
He declined to identify the company's investment banker.
Speaking on condition of anonymity, numerous analysts said they hear it is Lehman Brothers and that the emphasis has shifted toward finding a buyer. Several said they had read about it in the Nov. 30
issue of the trade publication Telecom Financing Week. Lehman Brothers declined to comment.
Naturally, Omnipoint can't rule out an acquisition offer too attractive to refuse, Schmitt said, but partnership is its focus.
"We haven't finished talking to everybody who wants to talk to us yet," Schmitt told Dow Jones. A lot of companies that weren't interested in a partnership when the stock was at 30 might want to take a second look now, he said.
Omnipoint offers service based on the global system for mobile communications, or GSM, used throughout Europe and in many other parts of the world. It operates in 39 countries and serves attractive markets in the eastern U.S., including New York, Philadelphia and Southern Florida.
"Their coverage is very solid and the voice quality is as high as anything out there," said BT Alex. Brown Inc. analyst Jeffrey Hines.
Omnipoint's assets and GSM technology could attract an overseas investor able to help it with its international marketing. That is what the company is really looking for, Schmitt said.
In a buyout, Omnipoint's assets could fetch a per-share price in the mid-teens despite the company's recent hardships, analysts said.
Interested buyers might include European companies like British Telecommunications PLC (BTY) and Vodafone Group PLC (VOD), analysts said.
Omnipoint's troubles also could spur consolidation among domestic GSM carriers, perhaps with the backing of investors like Hutchinson Telecommunications Ltd, a unit of the Hutchinson Whampoa
Ltd. conglomerate based in Hong Kong, or Sonera Ltd., of Finland. Hutchinson has already invested in Western Wireless Corp. (WWCA), and Sonera has invested in Aerial Communications Inc. (AERL).
"There's an opportunity for someone to put together a national market," said Salvatore Muoio of S.Muoio & Co., a New York investment firm. The domestic GSM market would benefit from consolidation, he said.
"I think Omnipoint is more for-sale than not-for-sale," he said.
Potential buyers or investors in Omnipoint may be hanging back, waiting to see if additional difficulties cut the stock price more, said one analyst.
Omnipoint was hit with a $9.6 million charge for international roaming fraud in the second quarter on revenue of $42.2 million. Its third quarter made one analyst wonder publicly if someone at Omnipoint
had broken a mirror or stepped on a crack, as its loss roughly doubled from the year before.
The company badly needs a good fourth quarter and Omnipoint's Schmitt thinks it will have one.
"I think the fourth quarter is probably going to be our best quarter ever," Schmitt said. He said he thinks the company will meet operating cash flow targets and end up with a total of 350,000 to 400,000 customers.
If it doesn't?
"People will hate me," Schmitt said. "It won't be pretty around here if it doesn't work out."
As they are, things aren't pretty. Virtually all wireless carriers are trading well below their 52-week highs, but Omnipoint investors seem particularly wary.
The company's misfortunes have led some investors to adopt "the cockroach theory," as in, for every bug you see, you bet there are several you don't, said Warburg Dillon Read analyst Kevin Condon.
However, the company thinks it did some important exterminating in the third quarter by purging inactive prepaid customers from its subscriber lists.
"Anybody who didn't give us money in the third quarter didn't count," Schmitt said.
That contributed to disappointing growth and per-customer revenue along with disturbingly high customer turnover and customer-recruiting costs, all of which are key measures for wireless companies.
But Schmitt said the housekeeping along with adjustments in the company's pricing and marketing have set the stage for recovery.
The company has come up with new packages that offer customers competitive packages of calling time and has eliminated monthly fees for prepaid customers that confused and deterred many people,
Schmitt said.
Success with the kind of monthly packages its competitors are offering and better execution in its prepaid business are two of the signs of improvement that analysts are demanding.
"It doesn't have to be terminal," Condon said of the company's current predicament.
What the company does have to do, though, is tell analysts more about how to make projections about prepaid customers.
Prepaid wireless service, though common in Europe, is novel in the U.S., and has raised some knotty questions about how to account for inactive customers, such as at what point you no longer count an
inactive prepaid customer on the subscriber list.
The company's third-quarter actions didn't go far enough in setting standards for making forecasts, said Robinson-Humphrey analyst Perry Walter.
"They had the opportunity to make things uniform and they haven't," Walter said. "They kind of let it slip."
In addition to a good quarter, Omnipoint needs a chief financial officer and $200 million to $400 million to cover its cash needs through the end of 1999.
The perception that the company faces a liquidity crunch has been a drag on the stock, analysts said.
The company said two months ago that it was close to a much-needed additional vendor financing agreement that would provide it with roughly $200 million, Condon of Warburg Dillon Read said.
Such agreements can take time, but already-worried investors fear that the company's two main suppliers, L.M. Ericsson Telephone Co. (ERICY) and Northern Telecom Ltd. (NT) could be balking, Condon said.
Omnipoint's Schmitt said he isn't worried.
"Vendor financing agreements are ongoing," he said. "I feel pretty good we'll get the financing we need."
In addition, Omnipoint will continue to court strategic investors and keep looking for ways to work more cohesively with its GSM peers.
"We've got to get together and make GSM look like more of a national brand," he said.
The company will continue to market its service at both ends of the socioeconomic spectrum. It is notably active in promoting its prepaid service in neighborhoods where shops sometimes feature amenities like bulletproof glass. And, because of its multinational technology, it also targets big-spending world travelers who want services like international roaming.
As the second quarter's international roaming fraud and the third quarter's prepaid debacle demonstrated, both markets can backfire. Handled correctly, though, both can be very attractive, Schmitt said.
Globe-trotting, phone-carrying roamers are an obviously lucrative niche. And prepaid customers don't require billing or costly hand-holding, Schmitt said.
"We have a debate about which market is the more profitable," he said.
Wall Streeters are watching to see if the company can take the necessary steps toward delivering that profitability.
"It's a blocking and tackling issue," said Hines.
Several analysts shared Muoio's assesment that many of the company's troubles are growing pains.
"Omnipoint's experience is in many ways typical of the difficulties of companies getting into a very competitive business like wireless," said Hines.
The early years have been tough on any number of companies, including the relatively large and successful Nextel Communications Inc. (NXTL), Hines said.
Despite the hurdles it must continue to jump, Schmitt said he remains broadly optimistic about the company's future.
"We've built good networks, we've grown," Schmitt said. "It'll be fine. It's just a lot more work than I expected. It has been a lot harder than I anticipated it was going to be.
"I'm optimistic that we're going to do just fine," he said.
Investors are looking for evidence that it is safe to share Schmitt's optimism. -By Shawn Young;
201-938-5248; shawn.young@cor.dowjones.com
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