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Technology Stocks : Winstar Comm. (WCII) -- Ignore unavailable to you. Want to Upgrade?

To: Steven Bowen who wrote (5623)	4/30/1998 11:27:00 PM
From: Jason Cogan	Read Replies (4) \| Respond to of 12468

Steven: <<Let's see, if the stock opens tomorrow at 70 on takeover news...This looks like a total gamble on you being right. How can you possibly see this crazy position as taking advantage of market inefficiency?...Please enlighten me.>> Since you asked so nicely, I'll be happy to. First, let me start with a question? Outside of your bullish optimism for WInstar, what makes you think Winstar is likely to hit 50, let alone 70 on takeover news? The most recent news shows Winstar to be the acquirer, not the acquiree. Acquirers dilute equity, not the other way around. In the meantime, AT&T appears to have made their local loop bet through TGNT, not wireless for the time being. A company like T, or WCOM, or QWST, could just as easily start purchasing spectrum from the government and equipment from Nortel, Lucent, etc. Why pay a premium to get something that generates negative cash flow, and where the components can be had for cost? That said, selling naked calls always comes with risk, and a takeover would be disastrous. But I see little risk of a takeover in the next 3 months, and much more likelihood of a substantial market correction. The highfliers, such as Winstar, with little current financial fundamentals to support their stock price, will likely be the hardest hit in such a market. Also, I misspoke before. My puts were not executed, so as it stands, I'm just short calls. Perhaps if we get a little more of a rally, I may pick up some puts cheap. In the meantime, the volatility I have collected is indeed very juicy. I got 1.5 dollars, essentially 1/6 of the stock price on annualized basis, for selling three months of risk. In order for me to lose, the market will have to reverse it's negative trend, take out the old highs on Winstar, and rally 30% above it's closing level. If markets are the least bit efficient, I'm willing to gamble that securities already rich don't revalue by an additional 30% in 3 months. Seems pretty rational to me, and I strategy I've used to perfection many times before. <<Also, you've harped on this negative net worth of $2B about ten times now. Wouldyou please enlighten me on this also.>> Happy to. I'll make it simple enough, so even Steve Squared and Six Consonants can understand. 2 billion of deficit breaks up this way: 1. 500 million current negative net worth 2. 300 million in option compensation not reflected in the balance sheet. 3. 1.8 billion in liabilities, ahead of stockholders in collecting cash flow from operations. Net: 2.6 billion Of course, Winstar currently has 1 billion in cash, but they're likely to plow through most of that before they ever turn EBITDA positive. So, by the time Winstar "possibly" starts earning cash flow due to operations, stockholders (YOU) will have over 2 billion of people with prior claims to cash flow. If Winstar can generate enough cash flow, perhaps even they can dig themselves out of this hole. But, this negative net worth will continue to be an anchor around the legs of the stock price, and one of the reasons I'm comfortable betting against the stock and a near term premium takeover. Hope this helps. Regards, JC

To: Steven Bowen who wrote (5623)	5/1/1998 12:49:00 AM
From: SteveG	Read Replies (2) \| Respond to of 12468

Didn't see Governali's recent WCII/CLEC comments yet, so here they are (I'm pulling out the pertinent WCII comments from a 3 part CLEC report): "..We are re-emphasizing the CLEC sector as the biggest beneficiary of changes in the telecommunications regulatory/competitive landscape. In addition, we are adding to our coverage: ESPI (Buy), ICG Communications (Hold), and McLeodUSA (Hold), and NextLink (Buy). Existing Buys remain: Teleport, GST, and WinStar. COLT is rated Hold by our London- based analysts..." "...Driven by valuation, our top picks of companies now under coverage are NEXTLINK, WinStar, and ESPI...." "...WinStar is an attractive play on the ability to use wireless technology to deploy CLEC networks very broadly at lower capital investment levels than wired CLECs. Thus, WCII fits our bias towards looking at this group from a DCF and EVA basis. In producing the same (or better) margins, and the same (or better) revenues than the wired CLECs, with less capital deployed, our valuation approach would assign a higher value to the business. Management is largely drawn from the long distance industry, and has signficant experience in building a business that can compete against dominant monopolies..." Also, though conservative in his valuation approach, Jack Reagan is not "bearish" on WCII. He DOES bring up some interesting questions regarding shares outstanding numbers in DCF modeling, that I hope to get clarification on soon. PS. Re: H&Q- I liked the QWST breakout and the Tellabs presentation, but I would STILL be heaviest weighted in WCII, for most of this year anyway. (Also, I sang the WCII tune to more than a few managers this week. I know at last one got his feet wet today)