XO Communications: The Devil is in the Details

XO Communications (XOHO.OB) has been making substantial progress in business development lately:

• The complete coast-to-coast 800 gigabit core network capacity upgrade;
• The nationwide IP/MPLS network upgrade with Cisco (CSCO) CRS-1 system doubling capacity and setting the stage for a four-fold increase and a multi-terabit routing expansion;
• The deployment of Sonus Networks Solutions (SONS) for advanced network security;
• The launches of fixed mobile convergence with Sotto wireless.

On the legal and regulation side, XO wins the critical ruling in litigation against Level 3 (LVLT) and ensures the FCC’s denying Verizon’s (VZ) petition for forbearance in the important 6 markets in recent weeks. Finally, XO Holding filed for $900 million mixed shelf last week, paving the way for further expansion and acquisition.

However, the stock barely moves, staying in a multi-year low level even though it has achieved revenue growth and improving financial condition.

Some observers say the market is unsettled by conflicts of interest - the majority shareholder Carl Icahn holds 90+% of XO debt that might have been refinanced at lower interest rates over the last couple of years, indicating as evidence that Icahn is putting his own interests above those of XO and the minority shareholders.

Another issue, unexplained, is the stock has remained unlisted for years. Some investors, as posted on the Internet, even “see a pattern. Every time the share price starts to move up, rather than supporting the move by obtaining a listing, improving governance, initiating CC's or sharing strategic thinking, management issues a press release and/or filing that depresses the price. The release, rather than being worded in the best-spin mode common to corporate bad-news announcements, is worded in a way that highlights the bad news and almost guarantees a move south. CI is selling the wireline side, CI has given up trying to sell XO, CI needs $900 million to keep the company afloat...”

Still, many investors see the long term potential of this company is promising and Carl Icahn - a savvy investor - won't act against his own interests; he definitely wins if XO's stock price goes higher.

The devil is in the details. If Wall Street sees any sign that the coming $900 million mixed shelf offer is relatively fair, the stock might double from here easily.

Disclosure: Author is long XOHO.OB