It’s quiet out there in the paging and messaging industry.
Perhaps too quiet.
WebLink Wireless Inc., Arch Wireless Inc. and Metrocall Inc. are the three largest independent paging and messaging companies in the country, and it seems their fates are intricately entwined. They are all facing subscriber losses in the hundreds of thousands and are weighted down by massive debt and interest payments. And since no outside investor or company has shown any interest in financing or acquiring one of these players, it seems that the three are on their own.
Moreover, for the past several months all three have been quietly laboring away, working to maintain their own financial health, while the nationwide paging and messaging industry seems to be slowly sliding into bankruptcy.
WebLink is perhaps in the worst situation. In May, the company filed for a Chapter 11 bankruptcy restructuring after an ambitious, last-ditch-effort merger with Metrocall fell through. WebLink has remained virtually silent since the filing until Friday, when it announced it won $15 million in debtor-in-possession financing. The money comes from two of the company’s principal lenders, and is secured by a lien on almost all of the company’s assets.
“We have our financing approved by banks, bondholders and the courts,” said Topper Pardoe, WebLink’s senior vice president of marketing.
In WebLink’s announcement, the company said it is considering a variety of options to get out of bankruptcy.
First, the company said it is searching for a new line of financing to support a graceful exit from bankruptcy on its own, without merging with another company or selling itself. While this may be the most preferable way out of bankruptcy, it’s not very likely, most industry watchers agree.
“There ain’t no strategic money out there,” quipped Michael Gill, executive vice president and director of research with Tejas Securities Group Inc.
If there were any financing angels available, they would have made themselves know by now, he said. As the situation now stands, Arch, WebLink and Metrocall have likely tapped every possible source for money and have so far come up dry. The reason, most agree, is that lenders are extremely wary of the current paging and messaging industry.
In the United States, the number of paging and messaging customers has been dropping like a stone over the past year. Most observers expected a drop, but the one they got blew all predictions out of the water. The decline has driven infrastructure provider Glenayre Technologies Inc. out of the business, and paging carriers TSR Wireless L.L.C., PNI Technologies Inc. and WebLink into bankruptcy. And the situation in the United States seems to be reflected across the world, with major paging countries like China, Taiwan and Thailand losing millions and millions of paging subscribers. In South Korea alone, the number of paging subscribers has dropped from close to 3 million to about 500,000 in less than a year.
However, the situation doesn’t seem to be as grim for some of the nation’s smaller paging companies. Many have loudly stated that they are doing just fine and are not suffering under the enormous debt load of the nationwide players. The one-way paging market is still a viable business, these companies argue.
WebLink would likely not agree. Besides a standalone restructuring, the company’s other option is a sale or merger, an alternative WebLink explicitly addressed in its release Friday as a means of getting out of bankruptcy.
“We are continuing to look at various partnerships-mergers, acquisitions, etc.,” WebLink’s Pardoe said.
That option also presents some difficult challenges.
Outside messaging companies such as WorldCom’s SkyTel Communications Inc. or SBC Communication’s Ameritech Paging could potentially move to merge with or purchase WebLink. However, neither of these companies nor any other has made the slightest move to do so-Motient Corp. executives made sure to quickly squelch a rumor several months ago about a merger with Metrocall.
So, for WebLink, that leaves fellow carriers Arch and Metrocall.
“The question is, how will they merge?” Tejas’ Gill said. “Nobody’s got any cash.”
Arch recently filed a complicated and detailed restructuring plan to reorganize its capital structure. Under the plan, Arch hopes to both cut its interest payments as well as eliminate a substantial amount of debt. Arch also included a potential pre-packaged plan for reorganization under Chapter 11 bankruptcy to indicate the severity of its position.
Gill said the plan will likely be modified over the course of the year-and praised it as a good pre-emptive tactic-but said it means Arch likely will be tied up in its own reorganization and unable to merge or acquire another company.
“Anyone trying to merge with them (Arch) is in limbo,” Gill said. The reorganization “has too many moving parts” to entertain a merger.
This assumption also repudiates current rumors about a merger between Arch and WebLink. Officials for both companies had no comment about a potential merger.
All of which leaves Metrocall.
Officials for Metrocall did not immediately return requests for comment, and the company has been virtually silent since the planned merger with WebLink fell through. The company has missed a variety of interest payments over the past few months, and most industry watchers are holding their breath in anticipation of a filing for bankruptcy-a move the company has repeatedly hinted at in filings with the Securities and Exchange Commission.
Whether WebLink and Metrocall could merge remains to be seen. Talks between the two companies broke down in May after Metrocall pulled out of its planned merger with WebLink because WebLink was forced to cut 15 percent of its work force and close the last seven of its field sales offices. Metrocall officials said the plan was to enter into bankruptcy conducting business as usual, and WebLink’s moves were anything but. Other unofficial reasons insiders have considered include WebLink’s possible inability to come up with additional financing to continue operating through a bankruptcy merger and arguments over whether the new company should be split evenly or by some other ratio.
Regardless, a merger between Metrocall and WebLink could still be in the works, but if it is still possible or whether it will ever happen is anyone’s guess.
So the situation in the independent paging and messaging industry is an interesting one: All of the players seem to be stuck in molasses. A merger or acquisition between any of the three players most likely is needed to break the current stalemate, but none of the companies are in a position to make such a move.
Will the nationwide paging industry slowly slip into lonely bankruptcy, where it could remain indefinitely?
“It’s a question that people have been asking for a couple of months now,” said Robert Hegblom, a senior analyst with the Strategis Group.
The companies that will survive, Hegblom said, are those that manage to move their business from the low revenues of one-way paging into the more profitable two-way messaging business. They also will need to continue expanding into telemetry and machine-to-machine communications.
“Those are the good markets to be in,” he said.
However, Hegblom asked, “is there room for all those companies?”
