WCGRQ. A buyout play with LVLT
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(COMTEX) B: Tulsa, Okla.-Based Broadband Provider Considers $675 Million
B: Tulsa, Okla.-Based Broadband Provider Considers $675 Million Unsolicited Bid
Jul 25, 2002 (Tulsa World - Knight Ridder/Tribune Business News via COMTEX) --
Williams Communications Group Inc., the bankrupt Tulsa-based wholesale broadband
provider, is considering an unsolicited $675 million cash-and-stock bid from
Broomfield, Colo.-based Level 3 Communications Inc., according to news reports
and sources close to the negotiations.
Williams Communications executives confirmed Level 3's offer but said the
company is not considering it exclusively. The Tulsa firm is seeking $150
million in outside investment as part of a restructuring agreement with its
creditors that would enable it to exit from Chapter 11 bankruptcy protection in
the fall, company officials said.
"As part of the plan of reorganization through the bankruptcy process, Williams
Communications is seeking minority investment," said Williams Communications
spokesman Cheena Pazzo. "To that end, we have received several inquiries from
potential investors, including Level 3. We are in the final stages of
negotiating a consensual amended plan of reorganization with our creditors and a
minority investor."
Level 3, which serves corporate customers in 66 markets and employs 5,800 people
worldwide, is intent on acquiring fiber-optic assets and customers as a result
of a $500 million cash infusion from an investor group that includes Warren
Buffett's Berkshire Hathaway, industry sources and analysts said.
Level 3 spokesman Paul Lonnegren said the company would not comment on a report
in the Wall Street Journal that Level 3 Chief Executive Officer James Q. Crowe
made a cash-and-stock offer for the Tulsa firm in a letter to Williams
Communications Chief Executive Howard Janzen on July 17.
The offer by Level 3, which is receiving legal briefs and court documents as an
"interested party" of Williams Communications' bankruptcy in the United States
Bankruptcy Court for the Southern District of New York, could complicate
negotiations among the Tulsa company's creditors, according to sources and
industry analysts.
Leucadia National Corp., a New York-based insurance and investment banking firm
with 2001 revenue of $656 million, is close to an agreement with Williams
Communications on investing $150 million in the company, the Journal reported.
The deal would comply with the telecom firm's lockup and restructuring agreement
with creditors and enable Williams Communications to emerge from bankruptcy as
an independent company controlled by its bond holders, according to news reports
and sources.
Leucadia National spokeswoman Donna Moshe refused comment.
A source close to Williams Communications said Level 3's bid did not satisfy all
of the bankrupt company's creditors -- unlike the reorganization plan on which
the telecom firm has embarked.
"Nothing has come to the fore that is better for all the constituents than the
path we are on right now," said a source close to the company. "It's not a $1.1
billion (Level 3) offer that was reported by the Wall Street Journal. They want
to pay $625 million in cash for the company, which is not close to its value."
Although sources close to the negotiations said Williams Communications has not
rejected the Level 3 offer outright, they said it requires Williams
Communications to have at least $450 million in cash on its balance sheet. That
requirement would reduce Level 3's bid from $1.08 billion to $625 million,
sources said. Level 3 also has offered $50 million of Level 3 stock as part of
its proposal.
Since Williams Communications executives have relinquished control of the
company in bankruptcy, a Level 3 offer could be matched or exceeded by competing
bids that would be entertained by the court, officials said.
In Williams Communications' bankruptcy filing April 22, it listed assets of
$5.99 billion and debts of $7.15 billion. The company has a 33,000-mile
nationwide fiber-optic network and a stable of major customers that include
Southwestern Bell parent SBC Communications Inc., Boeing Co., Yahoo! Inc. and
NFL Films.
Included in Williams Communications' debt is $2.5 billion owed to bond holders,
$2.37 million owed to Williams Cos. Inc., its former parent, and $725 million to
its banks.
The company's reorganization plan proposes to wipe out 490 million shares of
common stock. After it emerges from bankruptcy, new shares of common stock would
be issued to unsecured creditors. Bond holders stand to gain 52 percent of the
company while Williams Cos. would get 48 percent.
Shareholders' last hope for representation in Williams Communications'
reorganization was extinguished Wednesday by Judge Burton R. Lifland. Lifland
denied a motion for appointment of an equity committee that was made by lawyers
representing 15,571 shareholders.
Shareholders argued that the court cannot declare Williams Communications as
"hopelessly insolvent" without an investigation into transactions involving its
former parent as well as a determination of its reorganization value. In
addition, shareholders allege that they could receive a distribution of assets
if Williams Cos.' $2.3 billion in claims were subordinated or recharacterized as
equity.
In his order, Lifland said the committee representing bond holders already has
taken significant steps toward investigating Williams Cos.' claims. That effort
should not be duplicated by shareholders, the judge found.
Lifland noted that shareholders cited a Securities and Exchange Commission
memorandum filed in support of a motion to appoint an equity committee in the
currently pending Kmart Corp. Chapter 11 bankruptcy. Lifland said the SEC has
not submitted briefs nor taken a position in the Williams Communications
bankruptcy, and he said other cases cited by shareholders in reference to the
Kmart case are either "not applicable or distinguishable from the cases here."
The judge said shareholders may pursue their own investigations but not at cost
to the estate of Williams Communications.
"Further delay is antithetical to an overarching need to preserve or enhance
asset value," Lifland wrote. "This is especially so where, as here, the current
marketplace is continually devaluing the type of assets under the debtors'
umbrella."
Shareholders were dismayed by the judge's order.
"I'm disappointed in the ruling, and it's a symptom that there should be changes
in bankruptcy law," said Neal Nelson, spokesman for Williams Communications
Group Stockholders Committee in Wheeling, Ill.
"Beyond a certain size (of assets), there should always be an equity committee.
The U.S. court system is an adversarial system, and what has happened here is
that shareholders have been deprived of counsel -- and that's unfair." |
