It was an occasion for celebration. In early June, shareholders in careworn VocalTec Communications Ltd. (Nasdaq: VOCL) received some comfort. A silver lining in a very dark cloud, as it were. VoIP expert Jeff Pulver announced that he would invest in the company, considered the inventor of voice over Internet Protocol technology. “I have known VocalTec as a technology leader and continuous innovator for the past ten years,” said Pulver.com founder and chairman Pulver, “I’m excited about the opportunity to participate directly in the company’s future.”
An exciting and emotional day indeed, especially considering that VocalTec had $5 million cash at the time, and its cash burn rate is $3 million a month. VocalTec’s shareholders probably imagined Pulver opening his checkbook in a few days and writing a fat, life-saving check in the company’s favor. VocalTec’s share shot up accordingly, even though VocalTec and Pulver neglected to mention some important details, such as when the investment would be made, under what terms, at what price, and most importantly what would come next. Even if Pulver were to invest let’s get carried away for a moment several million dollars, there is still a need for a somewhat broader plan that would give VocalTec a cash cushion and that would save it in the long term.
More joyous progress was made in mid-June. Pulver visited Israel, and hosted a VoIP conference with VocalTec at its center as the industry pioneer. Pulver told interviewers that he was not knowledgeable about the company’s share price, but he was certain about its future. He did not disclose details about his investment, but his comments implied two things. One, he had no plans to invest quickly, and certainly not during this visit. There would be no photo-op with VocalTec chairman and CEO Dr. Elon A. Ganor, shaking hands and grinning from ear to ear with a huge cardboard check behind them. The second implication of Pulver’s comments was that his investment would be marginal, and not enough to lift the company from the floor.
Why did Pulver hesitate? He apparently knew a thing or two about VocalTec’s circumstances. A month later, VocalTec announced an alternative financing plan: its largest shareholder, Deutsche Telekom (NYSE:DT; XETRA:DTEG), would give a $2 million bridging loan. VocalTec fired 66 employees, leaving it with 35. It was forced to publish a going concern warning. It had burned $3.3 million, and was left with $17 million. A rather sad final chord, at least for the moment.
Assuming that time will pass before the massive lay-offs affect VocalTec’s operating costs, the company will have sufficient cash for only one more quarter, including Deutsche Telekom’s bridging loan. It is now mid-August, so the company has only a few weeks to announce its fate. It will have to announce a financing plan that will rescue it from its present situation.
Ganor already has a plan. VocalTec is negotiating a number of possible acquisition deals. At the same time, it is conducting due diligence for integrating its activity with that of another company. Market sources say none other than Deutsche Telekom will take over the company.
Deutsche Telekom is reportedly the lead candidate to acquire VocalTec, because of its current 15.3% stake in the company. Deutsche Telekom is VocalTec’s largest customer with an interest in the company’s survival. Although VocalTec’s sales to Deutsche Telekom and its subsidiary T-Systems are falling in absolute terms, they remain high as a proportion of total sales, reaching 31%.
Besides these options, VocalTec is also mulling a bidding process something between an auction and a request for offers. It will have to soon decide which financing alternative it will choose. Meanwhile, it is scrupulously reserving its right not to say anything.
In a press release, Ganor, as is his wont, is quoted as saying that he is pleased by progress in VocalTec’s Essentra softswitch platform, as if shareholders and the market are interested in such information.
What about Pulver? Sources at VocalTec insist that he hasn’t vanished, and that the company is embarking on a broader measure in which he will undoubtedly play a part. It’s hard to imagine that if VocalTec were to be sold, someone would say, “Hey, let’s wait for Pulver’s money. He also wanted to invest.”
This leads to the conclusion that an announcement about an investment is definitely not an actual investment. If the money has not arrived after so many weeks, and there is not even a statement to the Securities and Exchange Commission (SEC) outlining the terms of an investment, the purpose of the press release was apparently something else a public relations ploy.
“Globes” has not been able to reach Pulver, and his voice mail says he is “on the road.”
Much has been written about VocalTec’s ringing failure. It was once considered one of Israel’s technology jewels, but I won’t continue in that vein. In any event, VocalTec’s consistent failure is offset by another Ganor success story: ITXC Corporation, a VocalTec spin-off founded in 1997 as a provider of interexchange services to Internet telephony service providers. The sale of ITXC to Quebec-based Teleglobe International Holdings Ltd. (Nasdaq:TLGB), a wholesale international telecommunications services vendor, was closed in June 2004. The sale created the third largest company in its field, handling over 11 billion call-minutes a year. This investment in ITXC kept VocalTec going for a long time, since it sold all its holdings in the company on the market for tens of millions of dollars.
It is only symbolic that while VocalTec is fighting to survive, its former subsidiary is again involved in a merger transaction. Late last month, Teleglobe announced that it would be acquired by Videsh Sanchar Nigam Ltd. (VSNL) (NYSE:VSL; BSE:500483), India's leading provider of international communications and Internet services. VSNL is controlled by the Tata Group and AMD (NYSE:AMD). The acquisition will be carried out at a company value of $240 million, a 59% premium over Teleglobe’s average market cap over the three months preceding the transaction, and 22% above its market cap on the date of the announcement. Ganor can presumably only dream about such premiums, not to mention a company value of $240 million.
Published by Globes [online], Israel business news - www.globes.co.il - on August 10, 2005