As troubles continue to escalate for embattled paging companies, speculation on marriages between the largest companies are getting rave reviews, even if they don’t pan out.
Media reports surfaced last week that Metrocall Inc. was in merger talks with Motient Corp., a move that many industry observers saw as a positive move for both companies. The rumor was quickly squelched by Motient officials, who denied the company was in negotiations with Metrocall. This is bad news for Metrocall, which was forced to skip $19.5 million in interest payments and now faces a tough financial situation.
“If I had to bet, I’d say they probably will just go out of business,” said Donald Longueuil, an analyst with the Yankee Group.
A merger with Motient would have given Metrocall some desperately needed financial backing, and Motient would have scored Metrocall’s superior distribution channels, many agree. But now that Motient has taken its name off the board, there are few companies left that might merge with Metrocall.
The most likely merger candidate is WebLink Wireless Inc., which is also facing harsh times. In its recent earnings report, WebLink announced a huge drop in sales, dire warnings for the year to come and 125 layoffs. Perhaps the worst news is that WebLink needs an additional $70 million in capital by the second quarter to be fully funded for the year.
“I would like to see Metrocall and WebLink get together, but I don’t think there’s enough money there,” Longueuil said.
Michael Gill, executive vice president and director of research with Tejas Securities Group Inc., said a merger between Metrocall and WebLink would be an extremely complicated and involved affair.
“Both companies would have to go through a Chapter 11 (bankruptcy) to get the deal done,” he said. “It would be unprecedented, in my mind.”
Metrocall needs somewhere between $30 million and $40 million to fund its operations this year, Gill said, drawing on information in his “Paging Industry Report,” which has an exhaustive study of Metrocall’s finances. Gill said Metrocall’s banks apparently closed the door to more loans.
“It seems that the banks are the ones that instigated this liquidity crisis,” he said.
In Metrocall’s recently released earnings report, the company warned that it may not resolve its financial problems. Metrocall said a solution “may take place under a plan of reorganization in bankruptcy.” Along these lines, the company hired Banc of America Securities L.L.C. and Wit Soundview to advise it on specific merger and acquisition transactions, an added hint that the company is actively looking for a potential merger.
Another rumor that floated recently was that Metrocall planned to sell its spectrum license to Nextel Communications Inc. The move could garner Metrocall needed cash, indicated by Nextel’s recent $250 million license purchase from Arch Wireless Inc. However, Gill said that rumor, too, was likely false because Metrocall’s license is tied up in a reselling agreement with WebLink’s network. Metrocall does not own a network.
Gill said the Metrocall story will likely have one of three basic outcomes: a merger with another company, a cash windfall from a strategic investor or bankruptcy.
Longueuil said Arch Communications Group, SkyTel Communications Inc. or WebLink may merge with Metrocall, but they would have to seriously consider whether Metrocall is worth it.
“There’s too many negatives surrounding Metrocall-the negatives outweigh the positives,” he said. Metrocall “is probably worth more broken up than put together.”
