AT&T and Texas Pacific both were in federal court in Wilmington, Del., late last week for the first hearing in GST's bankruptcy case. A single attorney, who listened attentively but did not file motions or address the court, represented Texas Pacific. AT&T, on the other hand, was represented by five lawyers, who filed an objection to the bidding rules proposed by GST.
Texas Pacific Group, based in Fort Worth, Texas, is led by CEO David Bonderman, who is most prominently associated with the $9 billion 1993 reorganization of Continental Airlines, bankrupt at the time and burdened with as much bad press as debt. But the firm has made investments in telecommunications and technology recently, including payphone maker Landis & Gyr Communications Inc. (www.landisgyr.com) and DSL vendor (www.paradyne.com), among others.
In papers filed with the court June 2, AT&T identified itself as both a creditor and a potential bidder for GST's assets. But the substance of its objection to the proposed bidding procedures makes it clear --- and the presence of five lawyers makes it clearer still --- that AT&T is less concerned about getting paid than it is about assuring its ability to offer its "highest and best offer" for GST's assets.
GST and Time Warner Telecom Inc. (www.twtelecom.com) have signed a letter of intent in which Time Warner Telecom would buy GST's assets for $450 million. GST submitted proposed bidding rules May 23 to the court, spurring AT&T's objection.
Specifically, AT&T says the proposed rules won't give it enough time to do due diligence on GST's assets (GST originally proposed to end bidding on June 20), and goes to some length to explain to the court that AT&T's due diligence is about as diligent as can be.
"There are several categories of due diligence activities AT&T needs to conduct," according to the filing. "The debtors' business is a complex network of hundreds of thousands of route miles of fiber, spread throughout 49 cities, some of which are owned outright, some of which are leased, and some of which are burdened by contractual rights granted to third parties."
AT&T's objection points out that GST's network is "not mature," meaning it isn't completely built out. AT&T also would have to satisfy itself concerning the accuracy of GST's records, and the physical state of its network.
"AT&T has an experienced group of employees engaged in network validation who would perform the following essential activities, among others, in connection with evaluating the debtors," according to AT&T's filing. "A team would be sent to the debtors' Network Management Center in Vancouver [Washington] whose primary function would be to inspect the switches, the data equipment, the frame relays and the ATM switches to ensure that they are properly architected and compatible with current AT&T network elements.
"At the same time," AT&T continues, "a 'SWAT Team' of people would be sent into a sample of the 49 cities in which the debtors are located to survey the debtors' sites and inspect the buildings and switches."
Other local AT&T operations personnel in various cities would visit buildings where the debtors' customers are located to check the quality of the local network as well as to verify GST's records by conducting an inventory comparison against the company's records, AT&T explains. AT&T also would evaluate GST's current management structure, financial records and contractual obligations.
AT&T also says it needs at least eight weeks to accomplish all this.
AT&T wasn't the only carrier present in court last Friday. WorldCom Inc. (www.wcom.com) and Williams Communications Group Inc. (www.wilcom.com) were there as well. Williams' lawyers said they attended only as creditors. WorldCom's lawyers also filed an objection to GST's proposed bidding procedures, but unlike AT&T's objection, WorldCom's "limited objection" to GST's proposed procedures makes it clear that WorldCom is<$> concerned about getting paid.
GST's bidding procedures and its rush to close on the sale of its assets don't provide adequate procedures and safeguards, according to WorldCom's filing.
GST and Time Warner Telecom signed their letter of intent May 17, the same day GST filed for bankruptcy under Chapter 11 of the Bankruptcy Act. In its proposed bidding procedures, GST has suggested that it should be the sole judge of which bidders are qualified and which are not, that it should decide how much information a prospective bidder needs for due diligence, and that bidding procedures should end June 20.
However, GST and Time Warner Telecom also were supposed to reach a definitive sale agreement by last week. They were unable to do so, and U.S. District Judge Gregory Sleek gave them until June 12 to come to an agreement.
If that happens, and the court approves it, the agreement will be the model for future bids. But AT&T, WorldCom and GST's unsecured creditors object to all these proposed procedures, insisting they don't offer enough time for due diligence and that they give Time Warner Telecom an unfair advantage.
