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XO Exits Telecom, Focuses On Broadband

TelecomWeb News Break
November 7, 2005

Late last week, XO Communications said it will divest its national wireline telecom operation for $700 million in cash to Elk Associates, a private firm owned by XO controlling stockholder Carl Icahn.

The carrier says it now will focus any future effort on expanding its existing national fixed broadband wireless activity.

XO’s roots in fixed wireless go back several years to its Nextlink predecessor company but, despite its own financial challenges, the company has expanded that activity as well into wireline local and long-distance carriage via both buildouts and bargain buyouts of other carriers’ distressed assets. Following the sale, XO’s fixed wireless offerings to business enterprises and other service providers will include RF licenses in the 28 GHz-31 GHz band ranges covering more than 70 U.S. major metro markets. The XO Communications brand name will be held by the private firm for the national wireline operation, and the fixed wireless activity is expected to take a new name.

The agreement with Elk Associates and Icahn to sell the wireline operations follows several months of effort to solicit and select a winner from multiple bids. The transaction is anticipated to close by year’s end or by early 2006. Nevertheless, a special committee of its board of directors (members unaffiliated with Icahn) remains open to consider “superior proposals from third parties.” If the evaluation leads to a different deal, XO would pay Elk Associates a break-up fee of 1 percent on the transaction. XO’s financial advisor is Jefferies & Co. Inc.

According to XO, proceeds from the sale of the wireline business will be used to repay its outstanding long-term debt; to offer to redeem, at the closing of the sale, XO's outstanding preferred stock; and to fund growth and development of the wireless business. Once the sale is completed, XO says, the wireless business will be debt-free and is expected to have in excess of $300 million in cash to fund its operations and for other corporate purposes. XO’s CEO Carl Grivner characterized the action as a move to form “a pure-play fixed broadband wireless provider.”

XO has been one of the leading firms behind the Alliance for Competition in Telecommunications (ACTel), which has opposed the $16 billion SBC Communications/AT&T and the $8.5 billion Verizon Communications/MCI “mega-mergers” just approved by the federal government and most states.