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Hot Dogs, High Tech & Oil Shale

You have to hand it to Howard Jonas. At least he makes the telecom industry more interesting. He's morphed from telecom mogul to oil-shale baron.

Jonas is the founder and chairman of IDT Corp. (NYSE: IDT), the Newark, N.J.-based telecom operator that was one of the pioneers in international calling cards and inexpensive VoIP communications. Jonas, a former hot-dog vendor and author of the book On a Roll: From Hot Dog Buns to High-Tech Billions, got IDT into the energy business, investing in an oil-shale operation in Colorado, all to beneficial effect of shareholders, who have seen its stock rally hard.

IDT announced last week that it will spin off its energy subsidiary, Genie Energy, while IDT completely overhauls its capital structure. Genie has energy interests in the Northeast as well as the shale-oil operation in Colorado and a green-energy outfit in Israel. Then, on Monday, the company announced that Lord Rothschild and Rupert Murdoch would invest in Genie.

Add Rothschild and Murdoch to legendary hedge-fund investor Michael Steinhardt, who is chairman of Genie's Israeli business, as well as an investor in Genie. Steinhardt is famous for outperforming the S&P by 300 percent or so during his management tenure at multibillion-dollar funds. It's a nice collection of names to splash around. Excitement about IDT's restructuring and the new energy spinoff has sent its shares on a tear, up about 500 percent since the beginning of the year.

Then there's the capital restructuring -- which, true to IDT's ways, is complicated and may result in a de-listing from the New York Stock Exchange (NYSE) . The plan was outlined by IDT last week in a series of Securities and Exchange Commission (SEC) filings and press releases:

  • IDT's board of directors authorized an initial cash dividend of 22 cents per share, which will be paid in November. This will be paid to holders of IDT Corporation Common Stock, Class A Common Stock, and Class B Common Stock. The company said it expects to continue paying dividends.

  • The IDT Board has approved an exchange of one share of Class B Common Stock for each share of Common Stock (NYSE: IDT.C). The company says that "the offer is being made in light of the limited liquidity in the market for the Common Stock and the resulting disparity in the trading prices for the two classes despite the fact that the equity rights associated with the shares of each class are nearly identical."

  • After the stock swap, the company says the common stock may be de-listed from the NYSE. It also says that Jonas, who controls approximately 76 percent of the combined voting power of all the shares, will adjust his holdings "so as not to increase his combined voting power as a result of the exchange offer."

  • Separately, the company plans to spin off Genie.

Okay, got that? While it's complicated and confusing, let's not try to overthink it -- the stock price is up. And Michael Steinhardt is involved, so it must be okay, right?

It's all good until you remember that IDT has been terrible at managing spinoffs and diversification strategies in the past. And though IDT has recently turned profitable, let's not forget that its shares were whacked in the downturn of recent years like everything else, trading as low as 72 cents in 2008, from a split-adjusted peak of $65. Yes, if you bought at the bottom in 2008, you made a fortune. But everybody in it for the last five years has not fared well.

Here are some examples of IDT's busted experiments in alternate industries in the past:

  • Food distribution: The company operated a food subsidiary called Vitarroz Food Products, which focused on ethnic foods. The company lost millions on the deal before getting out of it in 2009.

  • Radio Broadcasting: IDT bought a radio company in 2001 and sold it in 2005. It lost money.

  • Entertainment: According to company filings, the company's IDT Entertainment division generated about $40 million in losses before being dumped in 2007.

  • Credit card collections: Most recently, IDT got burned by launching a credit-card collection service, which, according to company filings, lost close to $100 million. IDT got out of the business in 2009 after selling the credit-card debt portfolio.
So is Howard Jonas a genius or just a wild man? Well, he certainly has done well with IDT, as he's made his millions. And he's got a great story about going from Bronx bun-hawker to telecom mogul.

If you would like to speculate in IDT, go ahead and ride it along with Rupert Murdoch. Personally, I'd rather just sit back and watch as one of the telecom industry's most colorful characters tries to make some money drilling oil shale with some of the world's most famous investors.

— R. Scott Raynovich is the Founder and Publisher of The Rayno Report (www.raynoreport.com), which analyzes trends in technology innovation and investment.

shygye75 12/5/2012 | 4:18:09 PM
re: Hot Dogs, High Tech & Oil Shale

Didn't IDT also come out with some kind of service called Yak -- or was it Yack?

shygye75 12/5/2012 | 4:18:05 PM
re: Hot Dogs, High Tech & Oil Shale

OK -- the google is helping me to remember now. IDT was (or is?) offering some sort of Internet phone device called Yap through its Net2Phone operation. It's hard to tell if either still exists. There also is a Yak sighting related to Hot Dog Howie, somewhere in Canada (not Mongolia, as you might expect).

Scott Raynovich 12/5/2012 | 4:18:05 PM
re: Hot Dogs, High Tech & Oil Shale

I don't remember that but I believe one of IDT's first marketing campaigns had some kind of "Screw AT&T" flavor to it ...



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