DISABLED: MFS

WorldCom the large telephone company has done the toll business a grave dis-service by selling its subsidiary toll system integrator MFS to Able Telecom, a troubling Florida-based outfit.

Not to mince words, Able is one smelly mess.

It has had to sign a WorldCom seller’s note at 10.5% (conditions unknown) to complete the purchase of MFS at a time of record low interest rates apparently because noone else will lend it real money. It is unable to produce audited accounts. It is in serious violation of securities laws, according to the Wall Street analysts Asensio & Co. It is under siege from major law suits on behalf of shareholders, and a former partner. Its auditors just walked out on it.

It goes through senior staff like someone with the runs.

A former MFS CEO has said Able’s top guy spoke as if he believes skimming of revenue by management is normal in their line of business — that is stealing from shareholders.

Noone down there at Able in West Palm Beach FL will even comment on its situation, discuss the charges, or take or return phone calls. So we have to assume the worst...

“I resigned...”

We did track down Robert Dupuis who was announced with fanfare as the new Chief Executive of Able not long ago. After two weeks on the job he departed. He told us he “can’t talk about it.” Asked if he was fired or resigned, he said emphatically that he resigned. Able has had four chief financial officers in 2 years, it is reported. And when Ernst & Young walked out on it, it was the sixth auditor in a decade to dump Able.

MFS is one of a handful of major toll system integrators in the US and a spinoff of the large road builder Keewit. Then as a subsidiary of the telecom giant WorldCom, it gained major toll installation jobs in north and south America, Asia and Europe. Most prestigious have been contracts to implement electronic tolling and other major toll system changes for seven San Francisco Bay area bridges, and the world’s largest-by-far $500m deal with the NJ Turnpike and 3 other NJ toll agencies to implement and operate e-tolling in the northeast.

The state of New Jersey has sent investigators to CA and CO to report on why MFS has had problems in those states and hired Public Resources Advisory Group, a NY-based consultant to public agencies to report on the Able/MFS takeover turmoil.

John Haley the NJ Transp Commissioner told the NEWARK STAR-LEDGER he was “anxious” about the Able takeover and about MFS ability under Able to fulfil its NJ contract, saying: “We’re taking a prudent set of actions to figure out what (all this) means.”

Asensio & Co in a formal company opinion on Able wrote: “In an obvious case of selective disclosure, on Sept 11 Able issued a press release that did not mention that its auditors had resigned or its inability to file (quarterly results). Instead, Able announced it had concluded its financing terms with WorldCom. Even in disclosing financing terms, Able failed to provide material, adverse information. Able failed to disclose the conditions of the new loan, the amount of receivables it had collected and paid to WorldCom, and the amount of MFS’s losses used to reduce the purchase price. Able has also not disclosed the circumstances of its $10m, 12% senior subordinated notes. First, it failed to disclose that the WorldCom debt (loan) violated the note’s convenants and required a default waiver, which led to Able’s obligation to repay the notes in full on August 31, 1998. Now Able has failed to disclose whether it made the note payment or defaulted.”

Default, kickback talk

We understand Able defaulted, and WorldCom was left to choose between calling off the deal and finding a solvent buyer, or lending Able the purchase money at a high interest rate. We have repeatedly tried to talk to the WorldCom guy in charge of the deal to try and get their side of the story. There is talk of a kickback from Able to a WorldCom official, which might explain the deal. Or it might be a malicious fabrication. These guys have made a bunch of enemies!

The original sale price for MFS was around $100m but apparently Able has beaten the price down to $68m. MFS financial condition has not been disclosed since it was a fully owned subsidiary, but former senior management say they made large capital gains on stock options at the time of the Able takeover.

Auditor Ernst & Young dropped Able Sept 7, apparently because they could not provide Able management a satisfactory audit of its latest accounts. Management filed notices with the SEC of its inability to produce an audited quarterly account on the due date.

A class action suit against Able management was filed in the southern district of FL US court Sept 10 on behalf of people who bought Able stock this year. The complaint says that Able management (1) failed to disclose the poor financial condition of an acquisition (2) misrepresented that crucial executives of MFS would stay on to work for Able when the defendants knew they planned to leave (3) failed to disclose the use of “bottomless” convertible bonds to finance the MFS buy diluting shareholder value, and (4) failed to disclose that the financing of the MFS buy violated Able’s prior debt arrangements, thereby forcing Able to pay off long term debt almost immediately, along with penalties. The complaint says that Able managers violated securities laws in making false statements about Able’s financial condition and prospects, and concealed the “true nature and extent of the problems adversely impacting the company” to kite the price of Able stock.

Worthless

Able stock slid from the teens to a low of $5.00 but following the announcement of the WorldCom financing rose back up. Asensio & Co who specialize in analysing fraudlent stock promotions say Able common stock is worthless.

Able also faces an active suit from Sirit of Toronto alleging fraud, tortious interference and breach of contract. Sirit was negotiating a purchase of MFS in which it and senior MFS management would buy the company from WorldCom. Able was to be an approx 5% partner and was provided confidential financial information and analysis on this understanding, Sirit says. Then in a sneaky move Able did its own purchase deal with WorldCom.

Kevin Moersch the former CEO of MFS has said that Able’s chairman Gideon Taylor told him during discussions of the takeover that it was normal business practice to skim revenue out of operations such as theirs and wanted to know how much had been skimmed under Moersch. Moersch hotly denied any skimming, and said he wouldn’t have further dealings with the Able people, because of concern for his integrity.

You do have to give the Able crew credit for staying power. We thought they might be flushed into the Gulf of Mexico by Hurricane Georges, but when we last heard they were still hangin’ in there in their Miami redoubt. (Contacts Frazier Gaines, president Able 561 688 0400, Asensio www.asensio.com, Frederic Fox, Able shareholders lawyer 800-290-1952, Sirit complaint www.sirit.com, Rick Wiedinger WorldCom 703 208 4991)