The plan is ambitious, to say the least.
Metrocall Inc. and WebLink Wireless Inc. announced last week a plan to merge by concurrently filing for Chapter 11 bankruptcy, a business move that apparently has never been done before. The struggling companies face a number of serious obstacles-but if it works, they say, they will emerge cleaned up and ready to play.
“Both of these companies are survivors,” said Mike Scanlon, Metrocall’s senior vice president for marketing and communications. “They will get through this process.”
The main hurdle Metrocall and WebLink must overcome is convincing their creditors of the deal’s value. Scanlon said Metrocall’s chief executive and financial officers are already in New York, meeting with the company’s stakeholders.
“Now it’s up to the bondholders to decide,” said Michael Gill, executive vice president and director of research with Tejas Securities Group Inc. Gill said bondholders for both companies are looking for the best deal, and the Chapter 11 merger plan could be derailed if an outside company decides to make a play. Potential bidders include Palm Inc., Verizon Wireless, WorldCom Inc. or Motient Corp., Gill said.
“I would bet good money that another bid would come in,” he said.
Elliot Hamilton, senior vice president and director of global wireless at the Strategis Group, said an outside bidder is definitely a possibility.
“That could possibly happen,” he said. “I wouldn’t rule that out at all.”
But officials at Metrocall and WebLink don’t think that way, and for good reason-the value of paging companies is at a seriously low point.
The stocks for those that are publicly traded hover below $1 per share. All the assets from bankrupt TSR Wireless L.L.C. sold for only $12.2 million. And Metrocall and WebLink aren’t faring well either-Metrocall recently skipped $19.5 million in interest payments, and WebLink said it needs an additional $70 million to be fully funded for this year. In light of its troubles, Metrocall has been actively looking for a company to merge with-it recently hired Banc of America Securities L.L.C. and Wit Soundview to advise it on specific merger and acquisition transactions-but it only found WebLink, and the Chapter 11 merger circumstances are less than ideal.
However, Scanlon said its a move the companies must make in order to endure.
“Neither company wants to do this,” he said. “It is a bitter pill.”
But if it works, things could be much better for both companies.
According to Metrocall and WebLink, a combined company would have more than 8 million subscribers and about 5,000 employees. Its network would cover more than 90 percent of the North American population. And the best part, officials for the companies said, is it would enjoy the backing of about $700 million in revenue and a sharp reduction in debt.
The company would retain the WebLink name, and would mix the management teams from both companies. WebLink’s Chairman and Chief Executive Officer John Beletic would serve as chairman of the combined company, and Metrocall’s Chairman and Chief Executive Officer William Collins III would be vice chairman and CEO.
“It’s an awfully exciting company that would come out of it,” Beletic said.
And-as an added merger incentive-if either company backs out, the other will get slapped with a $12 million breakup fee, according to documents filed with the Securities and Exchange Commission. Metrocall will be forced to pay if another bidder makes a better offer, but WebLink will be allowed to match or beat any new deal. The fee will also be applicable if the bankruptcy court approves a reorganization plan from a third party.
Industry observers say the merger plan is a move of last resort. And, they say, it’s certainly a unique one.
“It’s definitely innovative, I’ll give them credit for that,” Hamilton said. “I do expect them to come out of bankruptcy and become a stronger company.”
“This is the first merger under Chapter 11 for any publicly traded company,” Beletic said. “The merger can work. We will pioneer it and I expect you will see other companies doing the same thing.”
“I will be very impressed if they get it done,” Gill said. “I applaud them for making the effort to do this. They’re embarking on a very long, strange journey.”
