IDT Corp., a familiar face in the wireless broadband industry as the former suitor of Teligent Inc., successfully bid $42.5 million for Winstar Communications Inc. after several tumultuous days of negotiations that had the company teetering on the edge of liquidation.
A judge in the U.S. Bankruptcy Court for the District of Delaware awarded IDT last Thursday infrastructure equipment and most importantly, Winstar’s 28 GHz and 38 GHz spectrum licenses. The deal saves hundreds of business, as well as numerous government customers, from having their telecom service dropped.
Lawyers for Winstar were planning to ask the bankruptcy court last Monday if the company could file for Chapter 7 after a qualified bidder failed to come forward. Among them was former Winstar Chief Executive Officer and Chairman William Rouhana and President and Chief Operating Officer Nathan Kantor, both of whom resigned in November to be able to bid on Winstar’s assets.
Reportedly Rouhana and Kantor bid $95 million, but lost out to IDT because IDT could close the deal faster and provide immediate cash to several Winstar vendors, including Verizon Communications and WorldCom Inc., all of which had not been paid for some time as Winstar waded through bankruptcy proceedings.
Under terms of the deal, IDT will pay $30 million in cash and $12.5 million in common stock, and invest $60 million in Winstar to be used as working capital. The sale agreement also dictates that 5 percent of the equity of the new Winstar operations go to a group of Winstar creditors.
Charles Garner, CEO of IDT Ventures, will be Winstar’s interim CEO, and Moshe Kaganoff was named interim president.
“This is an incredible deal,” said IDT Chairman Howard Jonas. “With almost $5 billion in assets and about $200 million in annual revenue, Winstar has great potential, and I have a plan to make it a very profitable venture.”
How IDT will return debt-laden Winstar to profitability is still not completely clear. Winstar filed for bankruptcy in April after accumulating more than $5 billion in debt. Peter Jarich, director of broadband research for The Strategis Group, thinks IDT will stick to what it knows.
“I think they will offer up new services and try to push more long-distance. The only worry is that because it (fixed- wireless) might be something out of their core competency, can they make it work?” Jarich said.
IDT’s majority business is calling cards and it also is in a partnership with Liberty Media Corp. to sell cable telephone service. Winstar’s network could help IDT fill the gaps in its telecom portfolio.
“The Holy Grail for the telecom industry has always been finding a reliable and practical solution for bridging the elusive `last mile,’ ” said Jim Courter, IDT’s CEO and vice chairman. “Winstar’s fixed-wireless technology offers a solid last-mile solution and is a great fit with IDT’s long-distance services and extensive fiber assets.”
This is IDT’s second attempt to acquire local multipoint distribution services assets.
In July, IDT offered to buy the remaining assets of Winstar’s main competitor, Teligent, after it filed for bankruptcy. IDT owned, and still does own, approximately 37 percent of Teligent. That deal fell through when IDT reportedly set a July 24 deadline with Chase Manhattan Bank, Teligent’s main creditor, by which Chase was to accept IDT’s offer, but when July 24 came and went, Teligent’s board members resigned.
In related news, Winstar’s former acting CEO, Frank Jules, now is the CEO of US LEC Corp., a Charlotte-, N.C.-based telecom provider. He replaces Tansukh Ganatra, US LEC’s co-founder, who is retiring Dec. 31.
