Agere Systems Inc.'s battle to achieve financial stability has shifted to the equity market after the IC manufacturer earlier this week was warned by the New York Stock Exchange that it was in danger of being delisted.
Agere is determined to remain on the NYSE and will employ a variety of tactics, including a reverse stock split, to lift its flagging shares, said a company spokeswoman. Agere, Allentown, Pa., joined the NYSE barely 18 months ago, following its spinoff from Lucent Technologies Inc.
"We have enough time to consider our options for remaining listed, and we're reviewing several options, including conducting a reverse stock split if necessary," the spokeswoman said.
This latest development is another reminder that Agere has more hurdles to clear in order to gain investor confidence after the difficult and prolonged separation process from Lucent saddled it with $2.5 billion in credit facility obligations and a small mountain of debt.
Agere's shares have struggled on the equity market since its initial public offering in April 2001. Priced at $6, the company's common shares fell on its first day of trading and closed at $5.05. Although it reached a high of $9.50 in May 2001, the stock's recent peformance has been less cheering to investors. On Oct. 7, the stock tumbled to 50 cents, a 52-week low, and over the course of 30 days starting in September traded below the NYSE average minimum requirement of $1.
Agere's experience mirrors that of Lucent, Murray Hill, N.J., which recently said its board of directors early next year will consider approving a reverse stock split that would allow the communications equipment company to continue meeting NYSE trading requirements.
There are other similarities between the two companies. Both are reorganizing their operations to focus on specific markets and have conducted a string of layoffs over the last few quarters. Agere recently agreed to sell its optical components business, excluding its cable-TV transmission unit, to TriQuint Semiconductor Inc. for $40 million. Previously, it sold its wireless LAN equipment business to Proxim Inc. for $65 million and an analog linecard unit to Legerity Inc. for $70 million.
These actions could help the company maintain its liquidity in the event of a cash crunch. At the end of the September quarter, Agere had $907 million in cash, down from almost $1.2 billion in the preceding quarter and $3.2 billion in the September 2001 quarter. The company is said to be burning about $180 million in cash a quarter and is unlikely to run out of funds before it starts generating free-cash flow sometime in the next year, according to John Harmon, an analyst at Needham & Co. Inc., New York.
"Agere currently has 55 cents in cash per share, which we estimate will reach a trough of 32 cents in the fiscal 2003 third quarter, after which point the company will resume generating cash," Harmon said in a report.
Agere could find itself in trouble if money doesn't start flowing in within the next year. In the third quarter, the company paid $222 million in fees and allowed its $2.5 billion credit facility to expire rather than raise more debt to extend its maturity.
For now, Agere can't look to the equity market for new funds if it runs into a liquidity crisis. Under the terms of its tax-free separation from Lucent, the company is prohibited from selling shares to raise funds, and at its Wednesday closing price of $1.50, the stock may not be that attractive to already jaded investors.
The company believes a recourse to the debt market for funds won't be necessary. Its break-even revenue rate is being cut to approximately $450 million, chief executive John Dickson said during a conference call last month, adding that the company's cost structure will be pared to match that estimate.
"We have ample liquidity to fund our business and complete our restructuring," the Agere spokeswoman said.
