World Access cancels STAR Telecom merger

World Access has terminated its agreement to purchase STAR Telecommunications, a transaction first announced nearly a year ago and approved by company shareholders last month. In addition, the company extended to February 2 its tender offer to purchase Germany-based TelDaFax AG.

The merger unraveled due to STAR’s inability to complete its sale of subsidiary PT-1, a provider of pre-paid phone cards. According to World Access, it was counting on an anticipated net cash infusion from the sale of $120 million to offset STAR’s financial liabilities.

“STAR has certain facilities in Europe that are valuable to World Access, but it also has a significant wholesale business that was losing money,” said Steve Koppman, senior analyst at Gartner Dataquest. “At a time like this, with everyone’s stock so low, World Access doesn’t want to put on extra debt on things that take them away from their focus.”

That focus is shifting to retail from wholesale. Consequently, the company’s pending acquisition of TelDaFax is taking some of the sting out of its failed negotiations with STAR, according to Michele Wolf, vice president of investor relations for World Access.

‘When we started negotiations with STAR, TelDaFax wasn’t even on the radar screen for us.,” she explained. “While STAR was very important from the standpoint that they had a very nice asset base in Germany …TelDaFax became extremely attractive to us because they have everything STAR has, and then some. Their entire revenue base is in Germany and it is entirely a retail revenue base, which was right on target for what we wanted.”

World Access currently owns 33% of TelDaFax and is contracted to acquire the 7% of the company held by its current CEO. World Access needs to acquire just over 10% more of the company to achieve majority ownership, which is necessary for the tender to go through. Wolf doesn’t anticipate any problems in doing so, adding that the tender offer is being delayed simply due to timing.

“With the Christmas holidays and the complexity of the German market, the tender documents weren’t getting to shareholders quickly enough,” she said. “So we need to extend it a couple of weeks to give them time.”