Magazine article Black Enterprise

LDDS Rides High on Insider Trading

Magazine article Black Enterprise

LDDS Rides High on Insider Trading

Article excerpt

Four years ago not many people on Wall Street had heard of LDDS Communications (NASDAQ symbol: LDDS), a small Southern long-distance telephone carrier. Today, the company is breathing hard on the heels of the leaders of the pack (AT&T, MCI and Sprint), and Wall Street is all ears.

Even though two LDDS regional vice presidents settled with the Securities Exchange Commission on insider trading charges, the company's prospects for future growth haven't dimmed.

In June, SEC officials said Philip Sheridan and Gilbert Carpenter agreed to forfeit more than $47,000 and $1,300, respectively, in alleged trading profits, and pay an undisclosed amount of interest on those profits as well as civil penalties. The SEC said both men pleaded "no contest" to trading in company stock before the public was aware of LDDS' acquisition of Advanced Telecommunication in 1992.

The revelation of possible misconduct made no impression on Wall Street investors, as weeks later LDDS went ahead with a sweet deal for WilTel, the gemlike long-distance unit of the Williams Companies.

The deal, which cost LDDS $2.5 billion in cash to complete, added $1.2 billion from WilTel's annual revenues to LDDS' coffers.

The company's sharklike approach to acquiring every company in its line of vision is clearly evident, because shortly after the WilTel deal, industry analysts noticed LDDS salivating at the next target--IDS Communications Group. That transaction, pending at BE press time, is said to involve a stock swap worth $700 million. If the deal is completed, it will be the nineteenth telecommunications sector firm that LDDS has bid on or acquired since 1990.

Industry analysts have said that with the acquisition of WilTel, LDDS expands its reach and creates profit centers in several areas. Among the most lucrative are WilTel's premium fiber-optic network accounts, which include the telecommunications traffic of MCI. Another perk is WilTel's network swapping arrangement with MCI that allows LDDS access to MCI facilities at a discount.

For individual investors, it's too late to get in on the LDDS action through one of its earlier private placements, or even its initial public offering, but with recent closing prices hovering around $18. …

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