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IDB to Merge With LDDS in $700-Million Stock Swap : Communications: IDB's major shareholders blast the deal, worth $9.36 a share at current stock values.

August 02, 1994|TOM PETRUNO | TIMES STAFF WRITER

Ending months of speculation, Culver City-based satellite communications firm IDB Communications Group said Monday that it has agreed to be acquired by long-distance phone company LDDS Communications in a stock swap worth more than $700 million.

But the merger terms immediately came under fire from some of IDB's big shareholders, who have suffered a 50% loss on their stock since IDB clashed with its auditors last spring over accounting issues.

Several institutional holders said LDDS had bid far too low a price, and they expressed shock that 38-year-old IDB Chairman Jeffrey Sudikoff has accepted the offer.

"It makes me wonder whether the (IDB) board is truly looking out for the best interests of the long-term shareholders," said Rod Linafelter, money manager at Denver-based Berger Associates, which owns about 1 million IDB shares.

Shareholder opposition raised the possibility that IDB could attract other suitors.

But IDB also announced late Monday that it is restating first-quarter earnings to 8 cents a share from 12 cents as a result of the accounting brouhaha and that second-quarter results will be break-even at best--revelations that could cool the opposition to the LDDS bid.

However the IDB saga plays out, Sudikoff's other principal venture--majority ownership of the Los Angeles Kings hockey team--isn't expected to be affected.

Jackson, Miss.-based LDDS said it will acquire IDB in a tax-free stock exchange. At LDDS' current stock price--$19.50 a share--the deal would be worth $9.36 a share to IDB holders, based on a floating exchange rate: If LDDS stock is worth $22 or more when the deal closes, each IDB share will be worth 0.451 LDDS shares. If LDDS stock is worth $16 or less, IDB holders will get 0.520 LDDS shares.

Between $16 and $22 per LDDS share, the exchange ratio moves incrementally.

IDB stock closed at $9.50 a share Monday on Nasdaq, up 12.5 cents, but the deal terms were announced at the market close.

The merger would join IDB's extensive international long-distance telecom network with LDDS' fast-growing domestic long-distance system.

Both companies have mushroomed via acquisitions in recent years, and both now own relatively low-cost communications networks that compete directly with telecom giants such as AT&T Corp.

LDDS had revenue of $1.1 billion in 1993; IDB's totaled $311 million.

LDDS Chief Bernard Ebbers said IDB will move LDDS closer to being a "major player" internationally. IDB, through pacts with more than 200 nations, carries phone calls and data worldwide for businesses and governments.

But while most analysts said they believe IDB and LDDS are a logical pairing in the rapidly consolidating communications field, there was widespread anger over the proposed purchase price.

In a conference call with analysts and money managers, Ebbers said he expects the addition of IDB will boost LDDS' 1995 earnings per share rather than be dilutive. One money manager said LDDS had been expected to earn $1.25 a share next year and that with IDB, earnings would be about $1.33.

But given those estimates, many IDB shareholders said they believed their shares were worth a considerable premium to the current price. "The valuation being paid by LDDS is very low," said Brian Kelly, a money manager at Invesco mutual funds in Denver.

IDB shares traded as high as $20.50 earlier in the year.

Sudikoff defended the deal and made clear that IDB's value had been penalized by the storm over its accounting.

"I'd love to believe that we're vastly undervalued," Sudikoff said. But IDB has been "short in the management department," he said.

In May, IDB's auditing firm of Deloitte & Touche abruptly resigned, citing a dispute with IDB over its first-quarter earnings.

While IDB initially blamed a personality dispute between Deloitte and IDB President Edward Cheramy, IDB's decision Monday to restate its earnings is a vindication of sorts for Deloitte and leaves questions about IDB's profitability claims in recent years.

Indeed, IDB also said Monday it is "assessing implementation" of an accounting change as to how it counts revenue from incoming calls. The firm said it has "not determined the impact of any such change upon its second quarter or its 1994 results."

LDDS chief Ebbers sought to assure Wall Street that his firm has studied IDB's books and that LDDS' purchase offer reflects "the quality of (IDB's) future earnings."

Sudikoff said IDB would consider any other offers, but he said other potential buyers have already studied IDB, without making bids.

Sudikoff is expected to become a director of LDDS, but no other title was mentioned for him. IDB said it expects its Los Angeles operations, which employ 150, to remain here.

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