Investors paying $25 million to back out of XO deal

Monday, Oct. 14, 2002 | 11:11 a.m.

SUN STAFF AND WIRE REPORTS

RESTON, Va. -- XO Communications Inc. today said it reached an agreement to release buyout firm Forstmann Little & Co. and Telefonos de Mexico SA from a planned $800 million investment in the telecom company.

The deal, which is subject to bankruptcy-court approval, apparently ends a struggle between financiers Carl C. Icahn and Theodore J. Forstmann for control of XO, a Virginia provider of Internet and phone services to small and midsize businesses in Las Vegas and other markets.

Under the agreement, Forstmann Little and Telmex will each pay $12.5 million, or a total of $25 million. XO, in turn, will release the two parties from any claims related to the original investment agreement.

Forstmann Little had been seeking to end the joint offer with Telmex to restructure XO, which filed for Chapter 11 bankruptcy-law protection in June. Last January, the Forstmann firm and Telmex agreed to invest $800 million for an 80 percent ownership stake in a restructured XO.

But since June, Forstmann Little and Telmex had argued that XO hasn't satisfied the terms of its restructuring agreement and thus the plan should be terminated.

XO said in a statement that the agreement has the support of all parties to the earlier agreement. They include Icahn, the Las Vegas casino owner who holds more than 85 percent of XO's senior secured debt and XO bonds with a face value of more than $1.33 billion, creditors and shareholder representatives.