New York investor Bennett LeBow’s proposed acquisition of the ITT World Communications international telex business and its subsequent merger with Western Union Corp (CI No 677) have been agreed by all the most significant players. LeBow is to pay $170m for the ITT business, which is believed to have made a small loss on turnover of $250m last year, and will finance the acquisition via an issue by Western Union of $450m of new senior secured debentures – junk bonds – to be placed by the kings of that kind of finance, Drexel Burnham Lambert. Drexels, as usual, says that it is highly confident that it will be able to place the issue. LeBow proposes to use the surplus after ITT has been paid to repay $213m of Western Union bank debt – but with only $173m in cash and the rest in stock; the balance of the new money would be used for working capital. LeBow remarkably pays only $25m for what, after the proposed restructuring, will amount to 53% of the Western Union common shares. The previous group that had plans to take control of the floundering Upper Saddle River, New Jersey telecommunications company, Pacific Asset Holdings Limited Partnership of Beverly Hills, California, and MDC Holdings of Denver, retreat into a subordinate role, but will be offered an option on 10% of LeBow’s 53% holding in the restructured company. Under the new restructuring plan, little different from the one proposed by Pacific Asset’s group, Western Union Corp would be merged into its Western Union Telegraph subsidiary, existing debt and preference shares would be replaced with new convertibles – but with a 10% coupon instead of 7%, and a conversion rate into common of $6 a share rather than $4. LeBow’s 53% would be in the form of junior common shares that will be convertible into full common only after a full year of profits after preference dividends have been paid. Where LeBow intends to restructure and expand Western Union’s telecommunications businesses, Pacific and MDC had planned to sell most of these off and turn Western Union into a firm operating primarily in the financial services field. The plan faces two significant obstacles: Western Union needs to persuade its bankers to extend its existing repayment agreement beyond May 29, and present investors in Western Union, who will see their equity drastically reduced, may well prefer to see the company liquidated and the proceeds distributed. LeBow argues that merged with ITT World Communications, assets and costs will fall, and the additional cash flow will transform the picture.
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