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Experts see Touch America in final days
Touch America’s end game is the talk of the town — make that the country.
By JAN FALSTAD
By Gazette Staff
Small investors and professional analysts alike are straining to interpret the tea leaves at the bottom of the telecom company’s empty cup.
Art Bechhoefer, a professional stock analyst and a Touch America investor in New York state, believes the end is near.
"I would say we should expect a bankruptcy in two weeks," Bechhoefer said Tuesday.
In the absence of any meaningful information from Touch America, investors are left guessing at what’s next for the Butte-based company.
The company announced Monday it was postponing its June shareholders meeting and canceling its dividend on some shares.
Bechhoefer started buying Montana Power Co. stock in 1985 as a safe utility stock that faithfully paid dividends.
When Montana Power transformed itself to Touch America, he hung in there believing there is genuine value in the company’s fiber-optic network. Unlike many investors, he studied electric deregulation for his doctoral work and analyzed Montana Power before buying.
He now owns 21,000 common shares, including 6,000 shares he bought in July after the stock price dipped below $1.
Bechhoefer has since watched the stock tumble to 15 cents.
His dream of making a $10 to $12 per share profit has evaporated. Only long-term investors with the cash to pay attorneys may be able to protect their interests through bankruptcy court. If these investors can wait a few years for a turnaround, they could come out with $3 to $4 per share, he said.
Now he thinks small investors may get nothing.
Touch America executives and board members won’t talk.
Chief executive Bob Gannon’s last live audience with investors came during a shareholders meeting last September in Minneapolis. That meeting was carefully controlled with screened questions.
D.A. Davidson & Co. senior analyst Jim Bellessa thinks bankruptcy is a real possibility, but not right away.
"Why would they force themselves into bankruptcy when they still have cash in the bank?" he asked.
But, there isn’t much cash left.
At the end of March, a federal arbitrator ruled that Touch America owes Qwest Communications nearly $60 million over a billing dispute.
The company said it had $20.5 million in cash left at the end of March. Touch America appears to be burning through up to $8 million a month to pay employees and meet expenses.
That leaves about four months worth of money.
However, the Qwest bill isn’t due right away and the same federal arbitrator could decide some remaining issues in Touch America’s favor.
The company hasn’t filed a financial report in six months, including being tardy with its annual report for 2002.
The company also announced recently it is writing off $135 million in assets from its books, plus taking another $827 million hit in the value of its fiber optics network.
Touch America’s management still could get lucky and find a buyer.
Level 3 Communications of Denver, a company in which financial guru Warren Buffett has invested, is one possible rescuer. Rumors in Butte have Level 3 jets flying in with executives who have been circulating confidentiality agreements.
Bellessa thinks Qwest would be a natural suitor, despite three years of bad blood between the companies.
Touch America could seek relief from creditors by filing for bankruptcy, probably in Delaware where the laws favor the company.
Bankruptcy, Bechhoefer said, will delay, but not cancel the numerous lawsuits against Montana Power, Touch America and several company advisors, including Goldman Sachs.
Goldman Sachs was the key investment banker encouraging Montana Power to sell its energy assets and jump into telecommunications.
On Monday, nine big Wall Street investment firms agreed to pay $1.4 billion to settle charges they misled small investors about certain stocks. That provides an opening for burned investors across the country, Bechhoefer said.
"I can go to Goldman Sachs and say, ‘You misled us in disposing of the Montana Power energy assets and forming Touch America. Now we want compensation,’ " Bechhoefer said.
Investors hunting for clues on the future of Touch America have had to play detective lately to follow the stock price.
The symbol used to be TAA for Touch America.
The symbol changed to TCAH.OB when the New York Stock Exchange kicked the company off the Big Board and it became an over-the-counter stock at the end of March.
On Thursday, Touch America changed its trading symbol again to: TCAHE.OB
The "E" is a warning to current and potential investors that the company hasn’t filed its financial report for last year as required by the U.S. Securities and Exchange Commission.
Jan Falstad can be contacted at (406) 657-1306 or at [email protected].
Copyright © The Billings Gazette, a division of Lee Enterprises.
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