XO’s Minority Shareholders Gather Their Strength

In response to Carl Icahn’s bid for the rest of XO’s common shares, shareholders have begun to organize, calling themselves the Ad Hoc XO Minority Shareholders Committee.  Their premise is that $0.55 is just too low, and that they trust neither Icahn nor the board of directors he thoroughly controls to keep their best interest at heart.  Some would put it much more colorfully, of course.  Their website is still quite minimal (heck, it’s only been a couple days), but the people behind it claim to represent millions of shares already.  There are somewhere around 85 million shares not in Icahn’s hands, so that is a pretty good start.    When the shareholder vote does happen, they might stand a reasonable chance of swinging it one way or the other.

I should clarify that I am not one of them. I do not own XO shares in any form, and my opinions on a fair valuation of XO aren’t nearly as favorable as comments to yesterday’s post showed.  But nevertheless I do sympathize. Icahn may be the champion of the common shareholder to the rest of the world, but in the private garden that is XO he has been quite the wolf in sheep’s clothing.

A few years ago he tried to split the company, taking the wireline assets and deferred tax assets for himself and leaving common shareholders with Nextlink and some cash.  He was blocked by a lawsuit from minority shareholders, and good thing too:  Nextlink was a total bust since then and has now been reabsorbed entirely by the wireline business.  Last summer he did XO the ‘favor’ of refinancing its debt via preferred shares such that he controls 89% of voting rights, after neglecting to have them do it a year earlier when anyone with a pulse could have managed it.  So I don’t blame them at all for not taking Icahn’s bid of $0.55 as fair.  Many blame him for the mismanagement of the company, its low margins, and for the current low stock price, and would see a buyout at this level as rewarding that.

By organizing, holders of XO common may manage to apply enough pressure to get a better deal.  Of course, challenging Icahn will be an uphill battle.  Minority shareholders have rights in such situations, but there are limits.  I don’t think they are likely to get anything near some of the more fanciful valuations, but they don’t stand to lose much by trying.

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