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IDT Dials Up Net2Phone

Light Reading
News Analysis
Light Reading
6/29/2005

IDT Corp. (NYSE: IDT) said last night it is preparing an offer for all outstanding shares of Net2Phone Inc. (Nasdaq: NTOP), its struggling spinoff.

IDT has not launched its offer yet, but a release last night said the offering price will be $1.70 per share of Net2Phone, compared with the stock's closing price of $1.41 (see IDT Readies Net2Phone Bid). Predictably, Net2Phone shares skyrocketed, relatively speaking, in after-hours trading, at one point climbing 32 whole cents (22.7%) to $1.73.

IDT already owns control of Net2Phone. The company in December offered to buy Liberty Media Corp.'s (NYSE: LMC) share of Net2Phone, a move that was completed in March to give IDT a 41 percent stake in Net2Phone and 57 percent of the company's voting power (see IDT Seeks Sole Control of Net2Phone).

Net2Phone, which spun off from IDT in 1999, had shuffled its board around in September in hopes of increasing outsider influence; apparently it didn't work (see Net2Phone Shuffles CEO, Board).

It's been a downward spiral for Net2Phone lately. Having sold VOIP services since 1996, the company moved into cable telephony in 2003, fueled by a $58.5 million stock offer. The idea was to let cable providers outsource their telephony services to Net2Phone. But some cable operators are avoiding the outsourcing model entirely, opting to build telephony networks with partners such as . (See Net2Phone Raises $58.5M and Net2Phone Out2Dry?)

For its third quarter, which ended April 30, Net2Phone reported losses of $9.8 million, or 13 cents per share, on revenues of $19.7 million. The company's cash pool was down to $466,000.

Net2Phone's weakness in cable caused Independent Research Group LLC (IRG) to drop coverage of the company last week. "We have been consistently disappointed by Net2Phone's ability to gain share with its outsourced cable telephony," IRG analyst Eric Zamkoff wrote on June 21, adding that "Net2Phone may have missed its window of opportunity" for that market.

— Craig Matsumoto, Senior Editor, Light Reading

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