Get Ready for the Fire Sales
Care to buy a hosting center, an integration business or fiber for a telecom network? Be patient, the fire sales likely will start soon.
PSINet, the telecom and e-commerce solutions provider, is expected to unload assets to pay off bondholders if it doesnt find a buyer. Meanwhile, MarchFirst is seeking buyers for various parts of its financially troubled Internet business and has retained an investment banker to help.
At PSINet, the outlook is not good. "No one will buy the whole company," says Maria Lemos, a bond analyst at Standard & Poors."That would be too much for any one buyer to handle because PSINet has so many different lines of business." In addition to telecom services, PSINet provides Web hosting, e-commerce solutions, managed security, and other services.
Last week, PSINet announced that it has hired Desdner Kleinwort Wassterstein to help restructure its debt, and it continues to work with Goldman Sachs & Co. to find a buyer.
Even if it can find a buyer or sell off pieces of the company, PSINet told investors its common stock "will have no value" and its bonds "will be worth significantly less than face value." After that announcement, the stock plummeted 74 percent to 19 cents.
As PSINet tumbled, so did Xpedior, the consulting firm it acquired 80 percent in via last Junes purchase of Metamor Worldwide and has been trying to unload for several months. Xpedior has only enough cash to last until June 30, at best, and its stock faces delisting after April 17 if it doesnt reach the minimum 1$ bid price. As of midday Friday, the stock hadnt traded since Monday, when it closed at 31 cents.
"PSINet made the biggest mistake by trusting the bankers, which didnt give it the slightest guidance, and acquiring Metamor Worldwide, which cost lots of money and didnt collect in receivables nearly as much as it paid out," says an analyst who declined to be identified.
As of early March, PSINet had $300 million in cash, down from about $1 billion at the end of Q3, meaning it burned through more than $100 million a month.
As of the end of September, PSINet owed $3.6 billion to bondholders and had assets worth $2.3 billion in book value.
More recent figures are not available because PSINet has not yet filed Q4 results.
"The company probably can last just another two or three quarters," says Michael Hodel, analyst at Morningstar. "At that point, bankruptcy is certain" and bondholders essentially will own PSINet.
Meanwhile, MarchFirst hopes to find buyers for the old Whittman-Hart organization and operations formerly associated with USWeb/CKS, says a source close to the company.
John Moore contributed to this story.