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Bankruptcy possible for Touch America

Touch America Holdings Inc. was ordered Thursday to pay Qwest Communications $59.6 million plus interest, a decision analysts said indictaes the cash-strapped Butte telecom might not survive.

By Matt Gouras of The Associated Press
The Montana Standard

The two companies have been embroiled in a dispute over a June 2000 purchase of Qwest assets. Both claimed the other was coming up short on agreements, but an arbitrator ruled in favor of Qwest.

“ Today’s arbitration decision sig nificantly increases the likelihood of bankruptcy for Touch America,” Jim Bellessa, a D.A. Davidson & Co. senior analyst in Great Falls, said Thursday.

Touch America has not posted a profit in nearly a year and cash reserves once bolstered by the sale of Montana Power Co. assets have dwindled to about $20 million, the firm said.

Touch America officials said bankruptcy was a real possibility.

“ We’re disappointed in the arbi trator’s decision and will continue to analyze the award to determine steps we need to take,” said Touch America CEO Bob Gannon. “ We also will consider how to address other outstanding issues between Touch America and Qwest in light of the award.”

Bellessa said the binding decision, which becomes final in about 90 days, leaves Touch America with insufficient resources to make it past the middle of the year.

To survive, Bellessa said, the company might sell assets “ for pen nies on the dollar,” seek a merger, hope for a new decision from the arbitrator, or offer Qwest a piece of Touch America to settle the dispute.

“ There’s only a few things the company can do to avert bankrupt cy, and they all have a low probability of occurrence,” he said. “ The ability of the company to remain solvent is low.”

The New York Stock Exchange suspended trading of Touch America shares Thursday in antici pation of the arbitrator’s decision. It last traded Wednesday at 53 cents a share.

Touch America hasn’t released it’s year-end financial reports yet, and a Touch America spokesman said the company expects to ask the Securities and Exchange Commission for an extension.

Touch America originally claimed it was owed $43 million from the purchase of Qwest phone business, and has other claims which could push the amount of $100 million.

But Qwest, which filed a claim for more than $100 million, said it hopes the matter is done.

“ Qwest is pleased with the inter im decision in this case, and we are analyzing how to bring this matter to a conclusion as soon as possible,” said Chris Hardman of Qwest.

Bellessa said Touch America is unlikely to get any help from Qwest, which is eyeing a portion of Touch America’s business.

“ Right now they are competitors,” he said. “ Qwest probably wants Touch America to fail.”

The announcement comes 13 months after Touch America became a standalone company. After the Montana Legislature approved deregulation in 1997, Montana Power Co. decided to quit the energy business, sell off its utility assets and become Touch America, a telecommunications company.

The transformation of Montana Power to Touch America meant at least $2 bil lion in energy assets were sold and invested in fiber optics. With the crash of the once-golden telecommunications industry, those billions have all but disap peared.

Shareholder Marjorie Schmechel, who’s father used to run Montana Power, laid blame for Touch America’ s financial meltdown on top executives. Schmechel is involved in one of many lawsuits pend ing against the company.

“ Not only were Bob Gannon and his executives at Touch America not smart enough to distinguish wheat from chaff when they jumped into bed with Goldman-Sachs, but they were totally out of their league when they began negotiat ing and ultimately purchasing assets from Qwest,” she said.

Goldman-Sachs advised Montana Power on the utility sales and transfor mation to Touch America.

In January, the company said it was laying off 35 percent of its employees, about 225 people, to cut costs after it sold 70,000 switched long-distance accounts to a Utah company.

The arbitration dispute between the two companies started after Touch America bought Qwest’s long-distance business in 14 states in June 2000.

The federal government ordered Qwest to sell its long-distance properties before it could buy the former Baby Bell, US West.

The companies ran into trouble soon after the sale and started accusing each other of improper billing on shared tele com lines.

Last November, Touch America announced it would run out of cash early this year unless it won the arbitrator’s decision or could sell other assets.

Because the company hasn’t filed last year’s financial statements yet, no one knows how much cash it had at the end of December. One estimate said Touch America ended 2002 with $25 million in hand.

One month ago, Qwest paid Touch America $23 million in a sale of some wireless properties. That boosted Touch America’s cash to an estimated $48 mil lion at the end of February.

On Wednesday, the company said it had $20.5 million left. That means the broadband fiber-optic network and telecommunications company spent $28 million this quarter.

Touch America has been waiting for this major ruling before filing its finan cial results for last year. The annual report to due Monday at the U.S. Securities and Exchange Commission.

After losing the arbitrator’s decision, Touch America said it would ask the SEC for more time to file its 2002 financial statements.

Editor’s note: Billings Gazette reporter Jan Falstad contributed to this report.

http://www.mtstandard.com/newslocal/lnews1.html

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Touch America removed from NYSE

By MATT GOURAS Associated Press

Exchange started delisting process last fall when stock fell below $1 per share

HELENA – The corporation that once was Montana Power Co., a dull but reliable 90-year-old utility before its disastrous misstep into the giddy world of high-tech, was delisted from the New York Stock Exchange on Friday.

Touch America Holdings Inc., which just 13 months ago sold off its profitable utility assets to become a telecommunications firm, said Friday it hopes bankruptcy can be avoided, but a spokeswoman acknowledged it remained a "real possibility."

For 90 years, the Montana Power Co. was the most recognizable and powerful corporation in Montana. It was intertwined with people’s lives, sponsoring everything from symphony concerts to basketball tournaments.

But in March 2000, following the state’s decision to deregulate the energy industry, the company announced plans to sell off its utility assets to focus on what was then its fledgling Touch America telecommunications offshoot.

The conversion from a solid, if unspectacular, old-economy energy company came just as the telecom industry fell flat. Touch America ended up right in the middle of it – one of dozens of companies with thousands of miles of fiber-optic cable, but few customers.

The NYSE started the delisting process last fall, after Touch America’s stock price fell below $1 per share. Shares once worth nearly $65 were trading Wednesday for 53 cents, before trading was suspended.

The exchange’s delisting announcement came the day after an arbitrator ordered Touch America to pay Qwest Communications $59.6 million plus interest in a dispute over a June 2000 purchase of Qwest assets.

Touch America has only about $20 million on hand – the last of the $1 billion it got for selling its dams, power plants and other utility assets – and would not be able to make that payment.

Company officials said news of the Qwest ruling prompted the NYSE to delist.

"They decided there was no way the price would be cured, so instead of prolonging it they just decided it should be delisted," said Linda McGillen, director of Touch America’s investor relations.

McGillen said the company had been counting on a favorable ruling to help boost its stock price and hopefully lessen the likelihood of bankruptcy.

"From the beginning, we looked at this arbitration with Qwest as something hanging over our head that we needed to get out of the way," McGillen said. "We were hoping for a favorable outcome, but we didn’t get that."

She said the company still was pursuing "a number of outstanding claims" in its arbitration with Qwest that might be able to reduce the award it was ordered to pay.

Analysts, however, were skeptical the company could avoid bankruptcy.

"The company is trying to remain a viable, solid entity and is working to that end," said Jim Bellessa, a D.A. Davidson & Co. senior analyst in Great Falls. "And they believe the things they have done over the past year will be helpful in moving toward being cash-flow positive."

Touch America pared down operations and cut its work force in recent months hoping to scrounge up much-needed cash.

Bellessa said the firm has other options as well. It could seek a merger or ask Qwest Communications to take it on as a partner in order to settle that company’s claim.

Touch America shares could be traded as an "over the counter stock" as soon as Monday, Bellessa said.

He said people will still be able to trade shares of the firm, under the new symbol of TCAH, through brokerage firms. But he said it will be harder to find out the company’s latest stock price.

"Shareholders will be able to trade the stock," he said. "But the ability to trade the stock may be reduced."

Steven Pohl, an attorney who worked on telecom giant Global Crossing’s bankruptcy case, said Touch America would get at least a few months of breathing room by filing for bankruptcy.

But in the end, Touch America will still need to find a way to make a profit – or face the prospect of selling its fiber optic network for about two cents on the dollar.

"Most bankruptcy judges don’t have patience for companies that don’t operate cash-flow positive in bankruptcy," he said.

Angry Touch America investors have filed a number of lawsuits over management of the company. One claims company executives, including President and Chief Executive Officer Robert Gannon, failed in their fiduciary duty to protect employees’ investments in the company retirement.

http://missoulian.com/articles/2003/03/29/news/top/news01.txt

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