Alaska Communications Systems recently filed registration documents with the Securities and Exchange Commission saying that Fox Paine and Co., which owns the majority of ACS stock, may put all its shares on the market.
If Fox Paine goes through with the stock offering, it would put the controlling interest in the local telecommunications company on the market, potentially opening it up to a takeover. Fox Paine has two years to act on the filing.
ACS couldn't comment on the possibility or go into detail about the filing due to federal rules prohibiting discussing information not included in the SEC documents. A call to Fox Paine seeking comment was referred to ACS.
Mary Ann Pease, ACS vice president for corporate communications, said the filing gives Fox Paine a two-year window to evaluate the market conditions and possible opportunities for a stock offering.
"Investment firms look for ways to get money back on their investments," she said. "Fox Paine has been with ACS since 1999 and they are looking for a return on their investment. This is one area that could be utilized."
Some analysts suggest that Fox Paine may be considering cutting its losses. Stockholders' equity, or the net worth, of the company has plunged in recent years, from $248 million in 1999 to a deficit of $28.6 million as of September 2004, according to ACS financial reports.
Since its inception in 1999, ACS has been plagued with sizable net losses and a burdensome debt load, all in a heavily regulated and competitive industry.
But ACS's future may be looking brighter. Its current management team has just completed its first full year of operations and is continually working to improve operations and refocus the business to become more customer friendly.
ACS has invested hundreds of millions of dollars to upgrade its wireless network and is positioned to take advantage of advancing technology for years to come, the company says.
The beginning
ACS Group was formed in 1998 when members of Pacific Telecom Inc.'s former senior management team joined forces with other industry executives and California-based Fox Paine and Co. Fox Paine is a firm that focuses on investing equity capital in buyouts, start-ups and in the restructuring of other companies.
The team quickly began acquiring various telecommunications companies from around the state, including Century Telephone Enterprises Inc., Anchorage Telephone Utility and wireless company Mactel, among others.
By the end of the second quarter of 1999, ACS has acquired $126 million in equity and $610 million in debt.
To finance the purchases, ACS in 1999 issued nearly 22 million shares of stock in an initial public offering. It sold about 20 million shares to Fox Paine Capital and its affiliates for about $121.2 million, according to 2000 year-end financial statements.
It also issued 10 million shares in a public offering, which netted about $127 million after a week's trading. The price ranged from $12 to $16.
But the stock prices haven't held strong. The stock has ranged from a high of $16.75 in 2000 to a low of $1.48 in 2002. ACS stock closed Jan. 14 at $8.91 a share with a volume of 127,000.
In 2000, the first full year of operations, ACS posted a net loss of $25 million on revenues of $313 million. Total assets were at $908 million with long-term obligations at $611 million.
As of September 2004, ACS posted a net loss of $32 million on revenues of $227 million. Total assets were about $642 million with long-term obligations at around $530 million. Revenues had dropped after the company lost a five-year, $92 million telecom contract with the state of Alaska.
Meantime, shareholders' equity - generally calculated as assets minus liabilities - plunged, from $215 million in 2000 to a deficit of $28.6 million as of September 2004.
It's not unusual for a telecommunications company to have high debt," said ACS president Liane Pelletier. "Cash flow is what is important."
Cash flow can be determined in various ways. One way to get an idea of cash flow is to look at net operating cash and subtract capital spending, said Michael Hodel, a financial analyst with Morningstar, an independent investment research firm. Net operating cash for ACS has dropped by about 33 percent since 2001, while capital spending has dropped by about 42 percent.
The two numbers were about even as of September 2004, at about $50.2 million in operating cash and $50.7 million in capital spending.
ACS has made several moves under the new management team in an attempt to increase its stock standings. Not all have worked out.
In recent months, ACS dropped a plan to reissue its stock into Income Deposit Securities, an untested hybrid stock that clips together a share and a debt note into one share for sale on the market. The company opted instead to begin offering quarterly dividends, due to begin in the coming weeks.
ACS announced in a January SEC filing that it plans to refinance a portion of its debt by issuing later this month $75 million of new common stock and entering into a new credit facility.
ACS spokeswoman Pease couldn't speculate on how much the company might save in interest payments through the refinance. Analyst Hodel said ACS could save as much as $15 million of interest expense this year alone.
In its first years, ACS struggled with regulatory matters that it deemed unfair. Those issues have been settled within the last several months, giving ACS the opportunity to focus on its operations.
Potential stock sale leaves questions
The current management team, lead by former Sprint executive Pelletier, just completed its first full year of overseeing ACS. Over the past year, the team has worked to refocus the company's operations and services to customers.
If Fox Paine does sell all its stock, that may open the opportunity for ACS to better diversify its board of directors, which dictates company policy.
If the stock does go on the market, a takeover is unlikely, Hodel said.
"The big question would be then, who would be willing to buy the stock," he said. "Off the top of my head, I can't think of a logical suitor for the company."
Local competitor General Communications Inc. wouldn't be interested in the company, said spokesman David Morris.
And Alaska may not be an attractive market. The national telecom companies currently are in a trend to pull away from relatively isolated markets, such as Hawaii and Alaska, Hodel said.
ACS is expected to announce its annual year-end financial report on Feb. 24.
