Carl Icahn's Latest Shuffle

By Jerry Knight
Monday, November 14, 2005

Carl Icahn has been trying lately to tell General Motors Corp. and Time Warner Inc. how to run their businesses. The 68-year-old New York financier has acquired significant stakes in both companies and is hectoring management to do something to "increase shareholder value" -- in other words, make the stock he just bought worth more.

But the honchos at GM and Time Warner might note that Icahn hasn't exactly worked wonders at a company he has controlled for more than two years: XO Communications Inc. of Reston.

Icahn is chairman of the board of XO and owns more than 60 percent of the company, a telecom-crash survivor that provides telephone and data communications services for businesses, using conventional wires and new-generation wireless hookups.

Just over a week ago, XO announced it is selling the wired part of its business for $700 million.

Selling it to . . . Carl Icahn.

XO said it will use most of the $700 million it gets from Icahn to pay back its debts and buy back its preferred stock.

Debt and stock owned by . . . Carl Icahn.

Companies he owns and controls hold all $213 million worth of XO's preferred stock and more than 90 percent of its $392 million in debt, XO financial reports show.

The bottom line is that Icahn & company will give $700 million to XO. Then XO will give $600 million of that back to Icahn. He will end up owning XO's traditional wired phone business outright. And he will still own his 60 percent stake in what's left of XO.

Buyer and seller, debtor and creditor, Icahn's simultaneous roles may sound like potential conflicts of interest. But in Securities and Exchange Commission filings, XO explains that a special committee of its board of directors weighed Icahn's bid and declared it the best of the offers the company got for its wired business. Investment bankers determined Icahn's offer to be "fair." The stockholders will have the final say -- they must vote on the transaction before it can go through.

Of course, stockholder approval is a foregone conclusion. As the company noted in one of its filings, "Mr. Icahn owns sufficient shares of our common stock . . . to assure the approval and adoption" of what he wants to do.

And the directors named by Icahn hired the investment bankers who put their stamp of approval on his offer.


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