IDT Plots VOIP Play

Some fun and games in the international telephony services market could be on the cards, to judge from the actions of a couple of big players this week.

IDT Corp. (NYSE: IDT, IDT.C) started the fun by announcing a $60 million hostile bid for ITXC Corp. (NASD: ITXC), which claims to be the biggest wholesaler in the international voice-over-IP (VOIP) market (see IDT Makes Offer For ITXC).

ITXC didn't appreciate the joke, quickly rejecting the offer and initiating a shareholder rights plan to prevent any hostile takeover attempts (see ITXC Rejects IDT Approach).

End of story? Far from it, according to insiders, who note that this is fairly typical behavior for IDT, and it may mark the starting point for serious takeover talks.

”The two companies talk regularly and are customers of each other; this was just a way to get the ball rolling,” says a source familiar with IDT’s plans.

If that’s true, it didn’t go down too well at ITXC, as the company’s poison pill plan demonstrates. IDT offered to purchase ITXC shares for $1.40 in IDT Class B common stock. However, ITXC’s cash and cash equivalents were approximately $1.70 per share at the end of the first quarter of 2003. Furthermore, the company's net book value per outstanding share exceeded $2.65 as of March 31.

”The offer was offensive,” says a spokesman at ITXC who declined to be named [ed. note: But what do you really think?].

Industry watchers agree it was unacceptable, and some even say insulting. “ITXC couldn’t accept that offer, it was below the cash value of the company,” says Thomas Friedberg, analyst with Janco Partners.

Others note that Howard Jonas, founder and chairman of IDT, is somewhat of a maverick who likes to make splashy announcements. IDT made a bid for Global Crossing Holdings Ltd. earlier this year and also offered $5 billion for WorldCom Inc.'s (OTC: WCOEQ) facilities-based operations and consumer long-distance business. Neither offer was accepted.

Aside from telecom operations, IDT has interests in radio broadcasting, financial software, and truck-towing services.

Jeff Pulver, IP telephony guru and founder of Free World Dial-up, a service that allows consumers to make calls anywhere in the world over a PC, says IDT’s offer is laughable.

“The joke is over regarding Howard Jonas and his clumsy publicity stunts,” Pulver says. "He must have a bet with a friend to make a ridiculous bid every month just to get in the papers."

Whatever you make of Jonas’s intentions, his company has a strong balance sheet with $1.1 billion in cash and cash equivalents to play with. In addition, IDT reported its revenues from wholesale voice services increased 28.5 percent in its second fiscal quarter and will grow 3 to 5 percent in the third.

”Jonas has a keen eye for growth and he’s a value buyer,” says Janco's Friedberg. “There’s a lot of distressed assets out there, but I wouldn’t put it past him to chase this one.”

Moreover, ITXC is the acknowledged market share leader in international VOIP. Its closest competitor is iBasis Inc. (Nasdaq: IBAS). Telecom statistics firm TeleGeography Inc. says ITXC carries nearly 20 percent of the world's international VOIP minutes (see ITXC Leads in VOIP).

VOIP is estimated to have accounted for 18 billion minutes worldwide in 2002 -- up from 9.9 billion minutes in 2001. TeleGeography estimates that worldwide there was over 160 billion minutes of international calling in 2002, up from 144 billion minutes in 2001.

ITXC believes all calls will travel over the Internet by 2010.

— Jo Maitland, Senior Editor, Boardwatch

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