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Source Analysis: What's Vitelco Really Worth?


Dec. 18, 2006 — Innovative Communication Corp. owner Jeffrey Prosser has offered to sell Vitelco and several other holdings to the V.I. government for $650 million.
But given the secrecy that surrounds his finances — secrecy enforced to date by both the Public Services Commission and the judge in charge of his bankruptcy proceedings — it's difficult to determine just what Vitelco (and the other holdings) is really worth.
Some clues, from bankruptcy court filings and other sources, have emerged in recent weeks.
The first question is what proportion of the value of the $650 million relates to Vitelco, and what to the other properties he is offering for sale. The latter includes the cable television company and some other holdings — but not the Daily News and TV2 (See "Prosser Seeking V.I. Government Bailout").
One of Prosser's lawyers, in a court filing earlier this year, estimated that Vitelco was worth 85 percent of Prosser's assets. So, applying the 85 percent to $650 million, one gets an asking price for Vitelco, alone, at $552 million, and the price of the other holdings at $98 million, for the $650 million total.
The V.I. government, with no spare cash, would then have to go into the bond market and raise the $650 million, thus raising taxes to meet the interest and principal costs for a generation to come.
If the principal amount were $650 million, on a 30-year loan at 5.5 percent interest, the cost to V.I. taxpayers would be in excess of $44 million a year, according to the mortgage-rate calculation program of Amerisave, available on the Internet. (To some extent, profits from phone company operations could reduce the burden on tax payers.)
Given the secrecy that surrounds Prosser's financial operations, one has to look elsewhere to get some measure of the value of Vitelco, the local phone company. Here's how the comparisons look:
— $552 million: Prosser's apparent asking price.
–$104 million: net worth of Vitelco the last time data was publicly available, in 2003.
–$130-$150 million: the sale price of the quite similar (and perhaps somewhat larger) Guam phone company.
–$207 to $242 million: the market value of a typical American rural phone company of Vitelco's size. This is figured at $3,000 to $3,500 a phone line multiplied by the 69,000 lines Vitelco has. These per-line market rates were provided by a Mainland telecom financial analyst with no ties to the V.I. situation.
All of these numbers have something in common: they are all well below half the price the Prosser is asking.
There is another factor to consider, and that is will Vitelco, once purchased, be debt-free? In his offer to sell the properties for $650 million, Prosser affirms that the properties would be debt-free.
However, an examination of recent court documents and a U.S. Treasury report indicates that the debts of the Prosser companies add up to $811.4 million:
— To the Rural Telephone Finance Cooperative, the non-profit, Virginia-based bank: $482.7 million in principal; $30.4 million in accrued interest and $11.8 million in legal fees (that RTFC has paid as it tried to collect its debts) for a subtotal of $524.9 million.
— To the former minority stockholders of Emerging Communications, Inc., the predecessor company to Innovative Communications Corporation (Prosser's privately held firm that controls the local phone company) which secured a judgment in the Delaware courts for $84.9 million as of 1998, with interest since then (as estimated by the Source) of $56.1 million, for a subtotal of $141 million.
— To the preferred stockholders of Vitelco, assuming that dividend payments for $8.5 million annually have been met, $85 million.
–To the Federal Financing Bank of the U.S. Treasury (as of November 2006), $60.5 million.
It is always possible that a settlement could be arrived at among the Prosser companies and their adversaries that reduced the debts so that they fit under the $650 million figure.
There is another possible end game. Prosser sells the local phone company to someone other than the V.I. government. The new owner then raises rates in order to pay some share of the Prosser debt that was absorbed in order to buy the company. It is hard to predict what this would cost, but easy to predict who would pay — the phone company's clients.
Such a sale would need to be approved by the PSC and the Federal Communications Commission.
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