The XO Saga Continues

On isp-bw list, there has been a "debate" (I'm being polite) about XO, Nextlink, and the Icahn debt. I mentioned some of this here and briefly mentioned other stuff here. But the buzz id big - even with stock at $0.75 and the executive options at $5.

Over at Seeking Alpha, someone really likes XO's chances. Me? I think that it is just Icahn's loss machine. The company is convoluted. "The Company operates its business in two segments through two primary operating subsidiaries: XO Communications, LLC (XOC), which operates its wireline business under the trade name XO Communications, and Nextlink Wireless, Inc. (Nextlink), which operates the Company's wireless business." Both owned by XO Holdings. I forget which owns the debt. R2 sued about the corporate restructuring when it occurred. They are set to sue Icahn again for neglect of fudicuiary duties.

Telephony mag reports that "tensions are also mounting between Icahn and shareholders of XO Holdings, who fear his treatment of that company’s debt could drive it to bankruptcy." The Open Letter to ICAHN: http://tinyurl.com/6b2sq3

"Icahn, who is both XO’s Chairman and its majority shareholder, also controls nearly all of its $461 million in debt, which begins to mature next year. As the company mulls options for refinancing and paying down that debt in a turbulent credit market, some shareholders have criticized Icahn for not allowing XO to refinance that debt earlier, when the credit market was much healthier."

"However, the big question is whether Carl Icahn – the billionaire investor and XO's Chairman, who also owns 59% of the stock and 90+% of its debts is willing to sell the company at any thing under $2 billion. Considering XO's $1.43 billion revenue and the $108 million EBITDA (improving), plus a minimum $100-300 million recurring saving from business/operation synergy by both companies under this specific merge, the price is not far away from the unconfirmed rumor that LVLT offered $3 billion for XO without success after LVLT paid $1.4 billion in early 2007 for Broadwing – a carrier with about $900 million revenue and near zero EBITDA. This wild guess neither includes XO's $3.3 billion accumulated NOLs (net operating losses), which alone may save the acquirer more than $1 billion in tax payment, nor its wireless business unit - NextLink, which owns the largest LMDS portfolio in the nation. LMDS is a hot commodity currently because it offers a viable vehicle for backhauling of the upcoming 4G mobile communication." [seeking alpha]

Is XO worth $2B? I guess in strictly financial terms. But you end up with assets and a balance sheet, not much more. XO is a company without a direction. They have tried so many things that have not panned out, mainly due to poor execution. XO can't decide if it wants to be a wholesaler or a retailer. You certainly can't be both to the same marketplace. It is a company with 4 Presidents:

1. Carl J. Grivner > President, Chief Executive Officer, Director
2. Ernest Ortega > President - Carrier Sales
3. Tom Cady > President - Business Services
4. Craig Collins > President - Hosting and Small Business

This typically means 4 separate silos that don't know what the other is doing and trampling all over itself in the process. (EarthLink suffers from this - much less now with only 25% of the staff left). Having sold XO, I can tell you that any changes to an order totally mess up the company. Many customers have been burned, never to return. And why would they? There isn't any market that XO doesn't have a number of competitors. And it has not had a clear marketing message to the marketplace in years. (Their sales people run willy nilly. Train some of them, will you? Geez. XO's biggest competitor is ITSELF. See rant on silos).

Most of the Board works for Icahn, which means he has little oversight. Never a good thing.

XO was "Started by Craig McCaw with $8 billion investment sunk in for the past 8 years, XO's $3.2 billion tax loss carryover credit is a strong incentive to profitable telecom companies to take over it for essentially free." And who would buy it? Talk has been of L3, GX, Qwest and Akamai, a CDN without a network.

Revenue alone and a balance sheet do not mean anything. Doesn't anyone remember ICI? You need a solid business plan, execution, and focus.

LDMS is only metro areas selling at about $1000 for transport. In those same metros you can get Fixed Wireless for much cheaper (licensed and 3650 MHZ) and you can buy fiber for LESS! XO is now "banking" on cellular backhaul as its marketplace. DUH! Twenty people are chasing that market with you. Again no focus. No direction. No plan. And Alpha writes that many execs have been there a long time. Too bad none of them have a clue either. Harsh, I know, but how do you spend over $8B and still can't get it right?