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As Vonage Holdings, the Internet phone service provider, was admitting that its legal woes could lead to bankruptcy, industry watchers were debating the merits of a takeover of the company by Sprint-Nextel.
In March, Vonage was was ordered to pay $58 million and barred from adding new customers after a federal court found it had infringed three patents owned by Verizon Communications. The company said in a filing Tuesday that risks from continuing litigation include the possible interruption of service, an inability to repay its debt and a decline in its stock that could lead to its being delisted by the New York Stock Exchange.
But its continuing woes were overshadowed by a debate following a report Monday that Sprint, which is also suing the firm for patent infringement, and Vonage were in buyout talks. Light Reading reported that discussions about possible ways of resolving the lawsuit included a deal for Sprint to buy Vonage.
Furthermore, some observers have seen hints of such a deal in recent remarks by the company.
During an investor conference call last week, Vonage’s chief legal officer, Sharon O’Leary, said: “I feel very strongly we’ll be able to enter into a business arrangement or agreement to resolve that matter,” when addressing a question about Sprint’s patent lawsuit, which is set to go to trial in September.
Following the Verizon ruling, an appeals court allowed Vonage to continue signing up new customers ahead of a hearing to consider a permanent stay on the bar on April 24. If it fails in its appeal, Vonage may be forced to sell or go bankrupt.
Light Reading said a deal with Sprint could be announced within three months of the ruling.
While Sprint could no doubt get Vonage on the cheap — the company’s shares have fallen 81 percent since its initial public offering last year — some analysts questioned the logic of the deal.
One analyst told Light Reading that the deal makes sense for Vonage, but it doesn’t make sense that Sprint would want to enter the retail market for sending phone calls over the Internet, a service known as voice over Internet protocol.
BusinessWeek said that Wall Street would view a Vonage acquisition as a shift in strategy. Over the past few years, Sprint Nextel has been trying to transform itself into a wireless-only company. Today, 85 percent of Sprint sales come from wireless services. By acquiring Vonage, Sprint would be jumping back into the local calling game.
“It’s a bad deal for Sprint,” Michael Mahoney, managing director at EGM Capital hedge funds in San Francisco, told BusinessWeek. “I’d look at it as a distraction from [Sprint’s] primary challenges.”
But Light Reading notes that other analysts say the 2.4 million VOIP subscribers would be a nice compliment to Sprint’s wireless and mobile broadband businesses.
Still, Vonage may be a more attractive buy for another wireless player, such as T-Mobile, owned by Deutsche Telekom, which has been testing a Web-calling service for the home and is not plagued by financial troubles, Will Stofega, an analyst with IDC, told BusinessWeek.
http://dealbook.blogs.nytimes.com/2007/0...rumors-heat-up/
In March, Vonage was was ordered to pay $58 million and barred from adding new customers after a federal court found it had infringed three patents owned by Verizon Communications. The company said in a filing Tuesday that risks from continuing litigation include the possible interruption of service, an inability to repay its debt and a decline in its stock that could lead to its being delisted by the New York Stock Exchange.
But its continuing woes were overshadowed by a debate following a report Monday that Sprint, which is also suing the firm for patent infringement, and Vonage were in buyout talks. Light Reading reported that discussions about possible ways of resolving the lawsuit included a deal for Sprint to buy Vonage.
Furthermore, some observers have seen hints of such a deal in recent remarks by the company.
During an investor conference call last week, Vonage’s chief legal officer, Sharon O’Leary, said: “I feel very strongly we’ll be able to enter into a business arrangement or agreement to resolve that matter,” when addressing a question about Sprint’s patent lawsuit, which is set to go to trial in September.
Following the Verizon ruling, an appeals court allowed Vonage to continue signing up new customers ahead of a hearing to consider a permanent stay on the bar on April 24. If it fails in its appeal, Vonage may be forced to sell or go bankrupt.
Light Reading said a deal with Sprint could be announced within three months of the ruling.
While Sprint could no doubt get Vonage on the cheap — the company’s shares have fallen 81 percent since its initial public offering last year — some analysts questioned the logic of the deal.
One analyst told Light Reading that the deal makes sense for Vonage, but it doesn’t make sense that Sprint would want to enter the retail market for sending phone calls over the Internet, a service known as voice over Internet protocol.
BusinessWeek said that Wall Street would view a Vonage acquisition as a shift in strategy. Over the past few years, Sprint Nextel has been trying to transform itself into a wireless-only company. Today, 85 percent of Sprint sales come from wireless services. By acquiring Vonage, Sprint would be jumping back into the local calling game.
“It’s a bad deal for Sprint,” Michael Mahoney, managing director at EGM Capital hedge funds in San Francisco, told BusinessWeek. “I’d look at it as a distraction from [Sprint’s] primary challenges.”
But Light Reading notes that other analysts say the 2.4 million VOIP subscribers would be a nice compliment to Sprint’s wireless and mobile broadband businesses.
Still, Vonage may be a more attractive buy for another wireless player, such as T-Mobile, owned by Deutsche Telekom, which has been testing a Web-calling service for the home and is not plagued by financial troubles, Will Stofega, an analyst with IDC, told BusinessWeek.
http://dealbook.blogs.nytimes.com/2007/0...rumors-heat-up/
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