Just days before embarking on an unprecedented merger under concurrent Chapter 11 bankruptcy filings, Metrocall Inc. pulled out of its deal with WebLink Wireless Inc., citing WebLink’s recently announced layoffs and sales channel cutbacks.
“Metrocall continues to believe strongly that a combination of the businesses of Metrocall and WebLink is the best alternative for both companies,” said William L. Collins III, Metrocall’s chairman and chief executive officer. “However, we believe that events since we signed our agreement on April 1 have changed the economics of the transaction and we have offered to renegotiate the terms with WebLink. We stand ready to begin these discussions immediately and to work toward a new transaction acceptable to both parties and their respective constituencies.”
However, chances for renegotiations seemed faint as of Friday afternoon.
“We are not currently in talks with Metrocall,” said WebLink spokeswoman Lori Burzynski Friday. Burzynski said WebLink was not sure exactly why Metrocall pulled out of the planned merger agreement, which was scheduled to start May 15, and she said WebLink might look elsewhere for a business partner.
“We haven’t ruled out a business combination with anyone,” she said.
As for Metrocall, the company said it still hopes a deal can be reached, but it too is unsure of the chances.
“We hope to get back to the table with WebLink,” said Mike Scanlon, Metrocall’s senior vice president for marketing and communications.
Scanlon said Metrocall pulled out of the deal because both companies pledged to continue with business as usual until the May 15 bankruptcy filing. However, WebLink’s elimination of 15 percent of its work force and the closure the last seven of its field sales offices-information filed with the Securities and Exchange Commission on May 4-showed that things were not quite business as usual.
“We feel that we’re the ones that lived up to the promises,” Scanlon said.
Beyond Metrocall’s stated reasons for pulling out of the deal, those involved with the situation said the company withdrew from the agreement because WebLink was unable to come up with the additional financing it needed to continue operating through a bankruptcy merger. When questioned, WebLink’s Burzynski referred to a WebLink statement released last week detailing the company’s financial situation.
According to WebLink’s release, the company “is in the process of negotiating a proposed $25 million debtor-in-possession facility with its lenders,” an amount the company said would keep it funded to the end of the year. However, WebLink stated, “there can be no assurance that the funding necessary to satisfy the company’s cash requirements will become available on a timely basis.”
Further information on WebLink’s financial situation was unavailable because the company missed the deadline to file its full quarterly 10-Q financial statement with the SEC. The reason, according to its filing Wednesday, was “WebLink’s management has been engaged on a full-time basis in the negotiations for debtor-in-possession financing … and in preparations for its previously announced filing of a bankruptcy petition.”
Many industry observers and company executives saw the merger as a creative last resort for the two companies. According to Metrocall and WebLink, a combined company would have had more than 8 million subscribers and about 5,000 employees. Its network would have covered more than 90 percent of the North American population. And the best part, officials for the companies said, is it would have enjoyed the backing of about $700 million in revenue and a sharp reduction in debt.
The company would have retained the WebLink name, and would have mixed the management teams from both companies. WebLink’s Chairman and Chief Executive Officer John Beletic would have served as chairman of the combined company, and Metrocall’s Collins would have been vice chairman and CEO.
The apparent merger failure is a unique twist in an interesting tale. Just a few years ago, Metrocall and WebLink were close rivals in the one-way messaging market. As the one-way messaging industry began to decline, both turned to two-way messaging in hopes of bolstering their failing revenues-and Metrocall began paying to use WebLink’s two-way messaging network. As revenues continued to decline, both companies sought to combine their operations in hope of benefiting from WebLink’s network and Metrocall’s sales and distribution channels-but now that plan seems be on hold. And Metrocall, which terminated the merger agreement, continues to make payments for its use of WebLink’s network.
Michael Gill, executive vice president and director of research with Tejas Securities Group Inc., predicted some kind of bankruptcy filing will be made soon because neither company can last very long. Gill commented that, unless a third-party savior appears, WebLink could file for bankruptcy within a month and Metrocall, which has suspended its interest payments, could file within three months.
Both companies seem to agree with the dire forecast.
WebLink said it is “re-evaluating the timing of its planned Chapter 11 filing. There can be no assurance that the existing outstanding common stock will have any value following a Chapter 11 reorganization or that the company will be able to reorganize successfully.”
Metrocall, in recent SEC filings, reiterated its poor financial situation: “Metrocall’s deteriorating financial results and lack of additional liquidity indicate that it many not be able to continue as a going concern.”
