Winnick Touts Plan for Buyout
Global Crossing Ltd. Chairman Gary Winnick, who reaped hundreds of millions of dollars by selling company stock before Global’s dramatic downfall into bankruptcy this year, is trying to round up investors to fund a management buyout of the fiber-optic giant.
Winnick’s potential involvement in bringing the company out of the largest telecommunications bankruptcy in history struck some as an audacious move for a man who had a hand in the firm’s collapse.
“I think it’s laughable,” said Pat Comack, an analyst at Guzman & Co. who followed the telecommunications firm until earlier this year. “I don’t think anybody is going to buy into [Winnick’s investment plan].... He’s just not a credible figure anymore.”
Undeterred by such criticism, Winnick approached Wall Street investment giant Goldman Sachs Group Inc., private equity firm Carlyle Group and the investment arm of Blackstone Group to help finance the management group’s restructuring plan, according to a source close to the interested bidders. All declined to get involved, the person said.
A spokesman for Blackstone Group declined to comment on Winnick’s contact with the company’s investment arm. Another part of the firm is reviewing bids on behalf of Global Crossing. Goldman Sachs could not be reached for comment.
A spokesman for Carlyle Group said the company was not interested in bidding on Global as a whole, and is not interested in joining in the management effort.
It’s unclear how many investors Winnick has approached about Global Crossing.
A spokesman for Winnick said the Global Crossing founder and chairman “wants to see the company survive and prosper.” Asked whether any of Winnick’s companies would be committing funds to Global, the spokesman said, “Not as yet. Everything is still in the development stage.” Winnick has made no “personal” commitment to invest money in the restructuring plan, said Howard J. Rubenstein, another Winnick spokesman.
Winnick has been criticized for reaping more than $575 million in profit by selling some of his company stock before the telecom industry imploded amid overcapacity, crushing debt and sinking demand. He still holds more than 89 million Global Crossing shares, worth $6 million based on Monday’s closing price of 7 cents.
Help from Winnick won’t be welcome in places such as Rochester, N.Y., where Global built its biggest operation by acquiring Frontier Telephone of Rochester Inc., the local and long-distance telephone company for the greater Rochester area.
“I wouldn’t trust Winnick. The harm he caused was immense. And I can’t imagine any investors who would trust him,” said Rep. Louise McIntosh Slaughter (D-N.Y.), who represents the area and has been trying to help laid-off workers.
She said a group of former Frontier/Global employees is trying to raise money to buy back Frontier’s long-distance operations. Global sold the local phone network to Citizens Communications Co.
Global Crossing’s creditors, owed more than $12 billion, may end up welcoming a Winnick-funded management plan, despite the baggage that might come with it, according to a bankruptcy expert.
For bankers and creditors, the bottom line is to recoup as much money as possible. Although they would be happy to take Winnick’s cash, creditors probably would balk at any plan that left them with equity in a company run partly by Winnick, the expert said.
Companies such as Verizon Communications and investors ranging from Gores Technology Group to Platinum Equity have expressed interest in salvaging Global and its worldwide fiber-optic communications network.
In January, Hutchison Whampoa Ltd. and Singapore Technologies Telemedia offered to pay a combined $750 million for 79% of the company, but the deal fell apart at the end of May, when the Asian companies declined to improve their offer.
Potential buyers must submit bids by June 20 for all or parts of Global Crossing. The company has until September to come up with its own reorganization plan.
Lately, the company’s management has been getting closer to the once-derided offer by a group of small shareholders to revive the firm with new money from existing shareholders, people whose investments are routinely wiped out in any bankruptcy reorganization.
“They’re tracking our plan almost exactly,” said Kennon A. Brennen, managing partner of K.A.B. Group in New York. “The company needs restructuring; some creditors will need to reinvest; the banks will need to reinvest,” he said. “The only difference is that instead of using shareholder funds, they’re selling off non-core assets, but there’s no guarantee of what they can get for those assets.”
Indeed, the management plan relies on the proceeds from the expected sale of Global Crossing’s conferencing business, its terrestrial network in the United Kingdom and its Global Marine unit, which installs, maintains and repairs undersea fiber-optic cables.
Global Crossing, meantime, says it has enough cash to see it through bankruptcy proceedings. It still predicts that a restructuring will be complete by the end of the year.
Its monthly financial report, filed Friday, shows that the company had $736 million in cash or cash equivalents on hand at the end of April, including $262 million held by Asia Global Crossing Ltd., a 58%-owned subsidiary that is not in bankruptcy.
The cash total is $44 million less than the total at the end of March, indicating that the company is curtailing costs and running through less money in its operations. The cash on hand doesn’t include $383 million in restricted cash, mainly proceeds from the sale of assets that can be used only with court approval.
Global Crossing’s cash position, though slightly down from March, fell a third from the $1.1 billion it had at the end of February. Most of that drop covered severance packages and restructuring costs, a company spokesman said.
The company’s loss in April was $163 million, or 17 cents a share, compared with the March loss of $171 million, or 19 cents a share. Revenue slid 5% to $266 million.
