New pact with Nextel breathes life into Chadmoore Wireless Group

From August 2000 to July this year, the price of Nextel Communications stock has fallen from $55 to $15. The Reston, VA-based Nextel isn’t alone; many telecommunications companies’ shares also have fallen.

The effect on Nextel’s shareholders aside, the steep reduction in Nextel share value stands to affect a pending transaction in which Nextel would use its stock to acquire the assets of Chadmoore Wireless Group, a Las Vegas-based SMR operator with numerous 800MHz licenses. In August 2000, Nextel and Chadmoore entered an agreement that would have netted Chadmoore’s stockholders about $160 million worth of Nextel shares. On March 31, the end of the quarter, Nextel’s shares traded at $13.75. Chadmoore’s quarterly report estimated that the transaction had lost $87.5 million of its original value.

Chadmoore’s officers, directors and principal shareholders have signed agreements to support the transaction, but the report points out that the reduced value of the transaction may make shareholder approval difficult to obtain.

Responding to the possible shareholder reluctance, Chadmoore and Nextel renegotiated and agreed on June 29 to reduce the original value of the transaction to $130 million worth of Nextel shares. To help Chadmoore sustain operations, its senior lender, GATX Capital, agreed to defer payments due June 30 and Sept. 30 until either Dec. 31 or the closing of the Nextel transaction, whichever is earlier. Chadmoore will pay GATX an extra fee of $1 million for the favor.

Since last year, Chadmoore cut back on marketing and development in anticipation of the transaction. It laid off its direct sales force. The company looked into selling its accounts receivable, inventory, office furniture and equipment, and its analog SMR infrastructure equipment. If the transaction does not close this year Chadmoore expects it to, the company will have to obtain additional capital to pay debts and resume business, find another purchaser of its assets or find an acquisition partner.

To help Chadmoore continue operations with the Nextel transaction pending, Barclays Bank agreed to lend the company as much as $32.5 million, of which Chadmoore has drawn $15.3 million. Should the Nextel transaction fail to close and if Chadmoore cannot negotiate further arrangements with lenders, the company would have only enough cash to operate for another 60 days after a negative shareholder vote, the report reads.

“The company would have to immediately seek another buyer or revert to its original analog business plan or a similar one based on a digital platform,” the report says.

Another possibility would involve the sale of selected SMR channels with the permission of its creditors and lenders.

During the quarter ended March 31, Chadmoore lost $3.2 million on revenues of $1.5 million. During the same quarter last year, it lost $3.6 million on $1.5 million in revenues. Its share price, 90 cents in August 2000, had fallen to 34 cents by the end of March. It fell further to the range of 20 cents to 25 cents in the weeks preceding the renegotiation. Upon the announcement on July 11 of the new agreement with Nextel and lenders, Chadmoore’s stock bumped up as high as 47 cents.