ClearComm L.P. is courting Siemens AG to provide equipment and finance the C-block personal communications services winner’s Puerto Rican network, but the licensee still has to clear two major hurdles before the manufacturer will consider a marriage.
ClearComm asked the Public Communications Network Group of Siemens for a total financing package of $160 million, with $110 million earmarked for network buildout and the remainder for working capital, operating losses and interest costs, said John Duffy, senior vice president for ClearComm. “Under the plan, Siemens AG will invest $40 million in equity in ClearComm de Puerto Rico and provide an additional $50 million in the form of loans to ClearComm de Puerto Rico,” Duffy wrote to ClearComm’s limited partners Oct. 20. “In addition, Siemens will assist ClearComm de Puerto Rico in raising the final $70 million through additional debt financing.
“We expect that the financing will be approved. The equipment acquisition agreement is for ClearComm L.P. to acquire network equipment and turnkey services from Siemens AG. ClearComm de Puerto Rico, a subsidiary of ClearComm L.P., will be able to provide PCS coverage to 90 percent of Puerto Rico with this network deployment. If this transaction is completed by the end of 1997, ClearComm would expect to run on the system in the second half of 1998,” Duffy wrote.
A Siemens spokesman, however, said the deal “had been held up” and that the company’s Power Venture Group backed out more than a month ago. Siemens had attached some conditions to the financing agreement that required, in part, ClearComm to hire an experienced telecommunications operations team to run the Puerto Rican system and that Siemens find a U.S. bank to underwrite a multimillion-dollar commitment. Members of both groups met in Florida last week to try and revive the financial partnership, but Siemens is holding fast to its conditions.
No time frame was specified by Siemens for completion of terms. “The ball is in their court now,” a spokesman said.
A ClearComm spokeswoman relayed a message from Duffy that said, “Conditions are a part of any agreement.9
ClearComm is considering disaggregating as much as half of the licenses it gained during the C-block auction in return for debt forgiveness, according to a November letter from Duffy. “The major advantages are the 50-percent reduction in both the Federal Communications Commission debt and interest payments as well as a business plan that is even stronger as a result of the disaggregation,” Duffy wrote. “The only negative impact is that ClearComm would forfeit the deposit it made on any market where it returns spectrum. This deposit loss is more than made up by the reduction in the principal and interest payments to the FCC. ClearComm would also be able to enter the auction of any spectrum returned by other companies in an effort to expand our footprint.”
A Nov. 21 letter from Texas-based newsletter editor Gary North-a ClearComm investor who wrote one of the first endorsements of the company when it was looking for limited partners in 1994-also pointed to an agreement with Siemens as a reason to drop a lawsuit against North and ClearComm. North wrote the letter to an unnamed party to an ongoing Oregon fraud and racketeering lawsuit against ClearComm and North. In that shareholder case, plaintiffs are seeking the return of their original investment and payment of their legal fees. A trial tentatively has been scheduled for April 1999.
Using Siemens’ name in an effort to urge the party to drop the suit, North cited the Siemens deal as affirmation by a major player that ClearComm was a viable entity: “The Network Group must believe that PCS 2000 (ClearComm’s former name) has a plausible marketing strategy for putting our FCC licenses to work … Siemens is not a company that would get involved with racketeering.”
North then wrote that “lawyers for the defendants” would ask the letter’s recipient what proof exists that North and/or PCS 2000 were fraudulent and involved in racketeering, especially if a company like Siemens is willing to become an equity partner.
“If a jury declares PCS 2000 not guilty, there are over 1,550 non-plaintiff investors in PCS 2000 who presumably will want to get the company’s defense expenses back, which is their money-probably a huge amount of money by mid-1999,” North continued. “What if the General Partner decides to placate these investors by suing you and the other plaintiffs to reimburse PCS 2000 for all of the company’s legal fees?”
North then advised the plaintiff to get out, just to reduce personal expenses. Defense expenses will grow, North wrote, and each plaintiff’s share, should they lose, would grow as well.
“It probably would be a good idea to provide some key dates to your local counsel,” he wrote. “Did you join this lawsuit before the FCC issued the licenses to PCS 2000? Or did you join after it issued the licenses, when it was clear that PCS 2000 had advanced to the second stage of its original investment plan? Then ask him: “Do you think it would be as easy to prove fraud today as it would have been if the FCC had never issued the licenses and Siemens had never entered the picture?’
“Here’s another question you may want to ask your local counsel: `Do you think that a jury is likely to believe my accusation about PCS 2000 being a fraud or is the jury more likely to believe Siemens’ judgment?’ ” North wrote. “See what he says.”
If the letter’s recipient drops out of the suit, North wrote that he would be willing “to let bygones be bygones. I just want to get on with my life without paying lawyers. Can’t we just drop it now-no more countersuits, no more lawyers? Drop a note to the other plaintiffs. See what they think. Maybe we can get this all behind us.”
