Will Omnipoint Be
Bought--Or Go Broke?
Takeover Bait
Julie Creswell
You probably know wireless phone
company Omnipoint for its clever
commercials featuring a smooth-talking
parrot. These days, Wall Street is doing
the squawking.
Omnipoint has spent more than a year
searching for a strategic partner to shore
up its financially stretched operations.
The company has burned through cash as
it built its wireless network in the
Northeast. (Last year it lost $663 million
on just $172 million in sales.) In an effort
to get management to speed up its
progress, an undisclosed investor added a
strange twist when it agreed to lend
Omnipoint $125 million last December. The
loan agreement stipulated that if a
strategic partner were not found by April
21, Omnipoint would have to pay an
additional $625,000 a month in interest
until a deal was closed, on top of the
14% annual rate it already pays. The April
date passed without an announcement;
now everyone is wondering whether
Omnipoint will make its May payment
deadline. (A spokesperson said the
company couldn't comment, because it
was in a quiet period, having just
purchased some wireless licenses.)
The extra monthly payment may not
sound like a lot, except that the company
is already $2.3 billion in debt--borrowing
heavily from many lenders, including
Siemens and Nortel, to help meet
operating expenses. If the company
seems to be lacking financial direction, it
may be because it has been without a
CFO since September, when Bradley
Sparks resigned.
"[The extra interest payment] is a big
chunk of change," sighs Carolyn Luther
Trabuco, a wireless analyst at First
Union. Like other analysts, she's mystified
by Omnipoint's trouble finding a partner.
Its wireless licenses and networks,
particularly in New York, Boston, and
Miami, should be extremely attractive to
several domestic and international
carriers, she notes. Analysts say its
holdings could help Sonera (formerly
Telecom Finland), Hong Kong's Hutchison
Telecom, and Germany's Mannesmann,
where Omnipoint's president once worked.
Domestically, SBC and BellSouth could
use Omnipoint's network to expand
geographically, as could MCI WorldCom
(though the latter is rumored to be in
talks with wireless carrier Nextel).
Alternatively, analysts predict that a
smaller wireless company, like Western
Wireless or Powertel, could buy a stake in
Omnipoint for around $18 per share. (The
stock now trades around $16.)
There are hints that a deal may be
imminent. In March, executives told
investors in a conference call that they
had received four written proposals.
(Omnipoint had been negotiating with
British Telecom last year, say sources,
but the deal was squashed when the
British telco formed an alliance with
AT&T.)
Complicating matters is the fact that any
strategic partner would have to forge a
relationship with founder and CEO Douglas
Smith. He is Omnipoint's largest
shareholder (with about 13% of shares
outstanding) and has a reputation for
being notoriously difficult to work with.
Smith's office is located in Bethesda, Md.,
while the company's president, George
Schmitt, keeps his office in New Jersey. A
source very close to the company says
their relationship is "strained"--to put it
mildly.
The difficult working situation could give
any potential partner pause. Since
Omnipoint can't afford to throw away
$625,000 a month in additional interest
for too long, analysts say its executives
should spend their time wooing
partners--and leave the squawking to the
parrot.
Vol. 139, No. 10, May 24, 1999 |
