Court OKs Winstar Sale

A Delaware bankruptcy judge formally approved New Jersey-based IDT Corp.'s roughly $40 million acquisition of Winstar Communications Inc. around 11 a.m. Dec. 19.

The deal, which was to close that day, sells substantially all of Winstar's assets to an IDT subsidiary for either $38 million in cash or $30 million in cash, and another $12.5 million in IDT's stock.

Both the office of U.S. District Judge Joseph Farnan Jr. and one of Winstar's lawyers confirmed the deal, but it was not immediately clear which payment offer Winstar is taking.

"It gives Winstar the opportunity to continue in business and move forward," said Winstar lawyer Mark Shapiro of New York-based Shearman & Sterling.

Winstar is based in New York, but its major presence is in Northern Virginia, where it employed at least 2,000 workers earlier this year before the company twice halved its work force.

Loaded down with almost $5 billion in debt at the time, Winstar filed for bankruptcy April 18, two days after it failed to make a $75 million debt payment to telecom-equipment maker Lucent Technologies Inc. Winstar listed almost $5 billion in assets in the original filing.

Shapiro said IDT is placing $60 million in an escrow account to prove it can complete the acquisition. That move distinguishes IDT's proposal from other bids for Winstar that reportedly could not produce proof of financing, which was a major condition to win Farnan's approval.

As recently as Dec. 17, Winstar's lawyers were prepared to ask Farnan to let Winstar liquidate after an accelerated but haphazard auction for the telecom company failed to produce court-approved buyers by a second hearing that afternoon.

That hearing was canceled while the judge and various lawyers remained in closed discussions to try to close a deal. Early Dec. 18, Winstar's lawyers formally presented IDT's bid to Farnan.

This will be IDT's second attempt to purchase a local phone company with wireless assets. In April, IDT bought a 37 percent stake of Teligent Inc., Winstar's Vienna, Va.-based rival, and took control of its board of directors.

Shortly thereafter, IDT replaced Teligent's management team with its own and began paring down its operations, even as it was bidding on the bankrupt company's assets. IDT withdrew its bid and vacated its positions at Teligent after creditors rejected its asking price.

IDT is an unusual fit for a local phone company such as Teligent or Winstar. The Newark, N.J.-based firm is a no-frills company that has picked up most of its international telephone card business by buying assets out of bankruptcy.

In addition to its phone card business, IDT also plans to offer cable telephone service through a partnership with Liberty Media Corp.

"We want to be a total media and communications company," Jim Courter, IDT's president, said in an interview last summer when IDT executives still served on Teligent's board. He declined to comment on the company's specific plans for Teligent.