Investors team up to acquire ICG

ICG Communications’ today announced that its board of directors has approved an agreement to sell the company to a joint venture of Boston-based M/C Venture Partners and Virginia-based Columbia Capital.

Neither M/C nor Columbia Capital had previously invested in ICG, according to the carrier.

Under the terms of the deal, MCCC ICG Holdings (the name of the joint venture) would pay shareholders 75 cents for each of ICG’s 8 million outstanding shares, making ICG a subsidiary of MCCC and no longer a publicly held company. ICG stock traded between 50 cents and 60 cents per share on Friday and between 60 cents and 70 cents per share today.

ICG also will receive a $2.4 million line of credit from its acquirers immediately as well as “additional amounts as necessary to fund budgeted operating cash shortfalls,” ICG said. ICG has been reporting cash flow shortfalls of $8 million per month since October 2003, when the company reached a settlement with a major customer, Qwest Communications, to terminate its dial-up service contracts early.

The acquisition requires the approval of shareholders, which ICG expects within 60 to 75 days, and the approval of the FCC and state public utilities commissions, which the company expects before the end of the year.

Following the acquisition, MCCC would “assume management of all day-to-day ICG operations, subject to supervision by ICG's board of directors,” ICG said, though the company would not be more specific about post-acquisition executive leadership. Jeffrey Pearl, ICG’s executive vice president of sales and marketing, has been serving as the company’s interim CEO since the previous CEO, Randall Curran, left in November 2003.

ICG will also reduce its workforce by 23%, cutting 186 of its approximately 800 employees, a spokeswoman said. Most of the 186 workers are located in four new markets that the company entered in January—Chicago, New York, Boston, Seattle and Washington, D.C. The Denver-based company stopped taking orders in those markets in mid-June, citing a lack of customers and profits there. Existing ICG customers in those markets are being transitioned to other providers, the ICG spokeswoman said. The company currently serves 24 markets nationwide.

As of March 31, ICG reported total assets of more than $180 million, with property and equipment worth more than $109 million. It had nearly $28 million in cash and equivalents and total liabilities of nearly $178 million. And it reported a loss of $1.78 per share on first-quarter revenues of nearly $62 million.

Two months before ICG declared Chapter 11 bankruptcy in September 2000, the company’s directors hired Randall Curran, whom they perceived as a proven turnaround expert, to resuscitate it. Curran took the company out of bankruptcy in 2002 and left a year later, after he had paid down the company’s restricted debt using funds from the Qwest contract termination settlement. Curran saw dial-up access as a declining business anyway and needed to pay off ICG’s secured debt to prevent the collateral cash deposit requirements of those loans from escalating. Once that was accomplished, the ICG spokeswoman said, the board considered the final stage of ICG’s restructuring complete and declared Curran’s turnaround a success.

But at the time, Curran told Telephony that ICG wasn’t out of the woods yet and that it still needed to shift its business more toward retail enterprise markets and away from wholesale dial-up access. As of March 31, 38% of the company’s revenue came from dial-up service—more than any other source.

“We were successful in reorganizing the company,” the ICG spokeswoman said. “We emerged from Chapter 11 in October 2002. However, the climate and environment in telecom continue to decline.”

In April, ICG sold its remote access service business to Level 3 for $35 million in cash, a transaction expected to be complete by October. That month, ICG’s auditors, KPMG, raised doubts about the company’s ability to continue “as a going concern,” citing recurring losses from operations and net capital deficiency.

An ICG spokeswoman said she didn’t know if ICG would retain its name after the acquisition but that its business and customer relationships would continue.