Description

Here’s a little stocking stuffer for the holidays. Worldport Communications Inc. (WRDP) is in the process of converting all of its assets to cash and settling all its liabilities. The balance sheet is conservative with assets understated and liabilities overstated. They have had success settling various liabilities for less than stated amounts and some off balance sheets assets appear likely to be converted into cash.

I anticipate that they will use the cash to consummate an acquisition, potentially utilizing large tax loss carryforwards. They may deregister the shares and/or change the domicile of corporation to outside of the United States.

There are 32,940,207 shares outstanding and insiders own 17,209,705 or 52.25 percent. The stock is thinly traded. This is not an idea for anyone managing a large pool of capital…sorry.

Background:

From 1997 to 1999, WRDP was a facilities-based global telecommunications carrier offering voice, data and other telecommunications services to carriers, Internet service providers, medium and large corporations and distributors and resellers operating in Europe and the United States. In order to meet its obligations under its interim loan facility, WRDP sold substantially all of its material assets during the first quarter of 2000.

During 2000 and 2001, WRDP pursued a new business strategy, focused on the delivery of Internet managed hosting services to global companies doing business in the European marketplace. However, WRDP did not achieve the revenue growth it had anticipated, which, combined with the general economic downturn and the slowdown in technology spending, prompted WRDP to review various alternatives to its existing business plan. WRDP decided to take restructuring actions and to divest certain assets during the fourth quarter of 2001 and the first quarter of 2002. As a result, the Company no longer has active business operations.

Since ceasing its business operations in the first quarter of 2002, they had been operating with a minimal headquarters staff. In the second quarter of 2003, the Company's Chief Executive Officer resigned and its remaining employees were terminated. As a result, WRDP does not currently have any employees.

Financials:

Cash & Marketable Securities total $39 million, total assets are $39.45 million and total liabilities are $23.27 million. Stockholder’s equity is $16.18 million or 49 cents per share. WRDP has reserved $10.16 million for net liabilities of non-controlled subsidiaries, which relates to subsidiaries that are essentially bankrupt or in receivership. WRDP believes it will not be required to pay these liabilities. Consistent with that belief, a Company Voluntary Arrangement was approved on August 8, 2003 relating to UK subsidiaries whereby WRDP would reduce net liabilities of non-controlled subsidiaries by $5.6 million while simultaneously receiving a $6 million dividend based on their current creditor claims in the proceedings. This transaction is not guaranteed to happen. If it does, however, it should happen by the end of March 2004. This would increase BV $11.6 million or 35 cents per share. The favorable resolution of other liabilities or the possibility of collecting on some small off balance sheet assets could further increase BV. WRDP is burning through some cash, about $400K/qtr (1.2 cents/share) based on the most recent filing. I anticipate the ultimate cash position to be between 70 cents and $1.00 per share.

Management:

WRDP’s controlling insiders have a successful track record as investors. Michael E. Heisley, Sr. is the Chairman of WRDP. He is the sole managing member of Heico, which owns approximately 6 million shares of WRDP. Stanley Meadows is a director of WRDP, general counsel for Heico and owns approximately 1.8 million shares. From Hoovers Online - “Investment firm Heico Companies specializes in buying distressed companies and turning them around. The firm owns interests in some 30 companies, many of them manufacturers founder Michael Heisley acquired in the Rust Belt during the 1980s. Companies Heico has helped out of bankruptcy include Nutri/System, Davis Wire, and Pettibone, a heavy industrial equipment maker that also holds ownership in other Heico purchases. Other holdings include metal buildings maker Robertson Ceco; convenience foods distributor Tom's Foods; and Worldport Communications, an Internet services provider for mid-market European companies in Europe. Heisley, who founded Heico in 1979, owns the NBA's Memphis Grizzlies.”

JO Hambro, which owns about $9.4 million shares, is an investment management company based in the UK. Heico & Hambro entered into a stockholders agreement whereby voting control has been secured.

Misc:

About one year ago Heico & Hambo tried to take the company private via a third party tender offer at 50 cents per share. They got a weak response and were forced to abandon their plans. Controlling the company, they then had WRDP tender for shares at 50 cents. About 6 million shares were tendered, enough to give Heico & Hambro voting control. In October 2003 the board of directors authorized the repurchase of 5 million shares. Given how thinly the stock trades another tender offer might be in their plans.

Litigation:

There are various legal actions involving WRDP. Rather than go through them point by point I suggest interested investors read the “Contingencies” section in the most recent 10-Q. There are some potential claims that have not been accrued for including an IRS audit relating to a $57.6 refund in connection with WRDP’s 2001 tax return. There is also a derivative lawsuit pertaining to WRDP’s tender offer and repurchase of preferred stock. A favorable outcome in the derivative suit could add value for shareholders.

Catalyst

Share repurchase program, perhaps through a tender offer; the favorable resolution of outstanding liabilities; and, a sensible acquisition with the cash.