Following the disclosure of their third-quarter earnings, two leading local multipoint distribution services carriers proved the business of financing is a hit-and-miss proposition.
Winstar Communications Inc. said it secured approximately $1.02 billion in financing, enough money to keep the company funded until it can generate positive cash flow, while fellow wireless broadband provider Teligent Inc. admitted it is actively searching for more funding to keep its operations afloat and plans to reduce its work force from 3,480 to 2,700 to cut costs.
Winstar’s funding, composed of equity, vendor financing and the expansion of a senior credit facility, will be used to fund Winstar’s ongoing business plan, which includes the expansion of its fixed-wireless network, products and services, the company said.
“The transactions announced today, together with our existing cash and the remaining amount available under the first $1 billion of our Lucent financing, fully fund our company into 2002, past the point of positive EBITDA, and through the completion of Winstar’s core network infrastructure,” said William J. Rouhana Jr., chairman and chief executive officer of Winstar.
Teligent issued a statement saying it has entered negotiations with several equity investors, bank institutions and vendors to secure additional financing. It has enough money now to keep its operations running into the second quarter of next year. However, Alex J. Mandl, Teligent’s chairman and CEO, said the success of the continuing negotiations could not be guaranteed.
“We will not issue any further public statements regarding these negotiations until they are concluded,” Mandl said.
Microsoft Corp. and Compaq Computer Corp. were among the companies to offer up $270 million in equity for Winstar. CSFB Private Equity and Welsh, Carson, Anderson & Stowe VIII L.P. also contributed part of the funds. Winstar said the investment is in the form of convertible preferred stock, which converts initially at $25 per share, a premium of approximately 20 percent over Winstar’s average share price for the last 30 days, plus five-year warrants to purchase an aggregate of 4.59 million shares of common stock at an initial exercise price of $25 per share.
This investment comes on the heels of a $900 million investment made by the same companies in February and complements $2 billion in financing from Lucent Technologies Inc.
Upon news of the funding, Winstar’s stock price shot up nearly $6 to trade at $27.81. The price settled a bit and was trading at $26.36 at RCR Wireless News press time, up 56 cents from the previous day’s close.
In stark contrast, Teligent’s less-favorable announcement caused its stock price to plunge $1.56 to $5.12. It recovered only slightly, trading at $5.75 at press time, down 94 cents from the day prior. Just eight months ago Teligent’s stock hit a 52-week high of $100.
PaineWebber analyst John Hodulik downgraded Teligent to a “neutral” rating from “attractive,” and cut his price target to $10 from $15. Hodulik said that potential sources of capital “seem more and more unlikely to contribute cash.” Analysts called Winstar’s funding triumph “very good news,” noting it would allow the company to pursue its business plan with few alterations.
Winstar reported revenues of $195.1 million for the third quarter ended Sept. 30-a 63.3-percent increase from third-quarter 1999. The company reported a net loss of $227.4 million, or $2.50 per share.
Teligent said its revenues for the quarter were $42.7 million, a significant increase form the $10.3 million in revenues reported for third-quarter 1999. The company experienced a net loss of $238.6 million, or $3.88 per share, compared with a net loss of $143.6 million, or $2.66 per share, for the same time last year.
In conjunction with the earnings announcement, Mandl said Teligent will begin a wholesale sales effort in each of the 43 markets in which it operates. In nine undisclosed markets, he said the company will focus new sales solely on wholesale customers.
