R2 Investments Sends Letter to XO Communications Board Demanding They Protect Minority Shareholders' Rights and Reject Icahn's 'Insulting' Takeover Bid

FORT WORTH, Texas, Feb. 15, 2011 /PRNewswire/ -- R2 Investments, LDC, a shareholder of XO Holdings, sent the following letter to the company's Board of Directors today, demanding that they reject a takeover proposal from Carl Icahn that significantly undervalues the company and act in the best interest of minority shareholders.

A full text of the letter follows:

Dear Messrs. Knauss, First, and Gradin:

It appears that Mr. Icahn is back at his old tricks and is again trying to destroy minority shareholder value.  We sincerely hope that the courage you displayed last time was not part of a grand scheme to simply help bolster your claim that you are independent this time.  If you do not find a way to say "NO" to Mr. Icahn once again, we are going to be forced to believe that this was all part of your original plan to hand the company over to Mr. Icahn and will challenge it as such.  How interesting it would be if there was some plan hatched by you all whereby you really always intended to sell the company to Mr. Icahn but felt it would look better to say "NO" the first time to prove your theoretical independence.  We will be looking for this smoking gun.  We will not be fooled and neither will the Delaware and New York courts!

As you know, R2 Investments, LDC is the beneficial owner of more than 15 million shares of XO Holdings, Inc.'s common stock, and has sent each of you numerous letters asking the "independent" directors to protect minority shareholders' rights.  Unfortunately, Mr. Icahn seems intent on continuing to trample these rights and has now offered to buy all the outstanding shares for an insulting $0.70 per share.

For a moment, please humor us as we predict how the next few weeks might play out.  The "independent" directors have likely already retained counsel and will negotiate with Mr. Icahn for an increased price.  Mr. Icahn will "generously" increase his offer to $1.00 per share.  The "independent" directors may trumpet their accomplishment and tout that they were able to increase Mr. Icahn's offer by over 40%.  

There will be enough of an uproar from the minority shareholders that the new offer of $1.00 per share will likely be rejected.  Mr. Icahn will once again "generously" increase his offer to $1.25 per share and will threaten to complete the deal around the minority shareholders, which they may or may not be able to legally prevent.  Threatened by a squeeze-out and tired of fighting, minority shareholders may succumb.  The Company might be his for $1.25 a share. Our goal is to make certain this never happens.

The shameful aspect of all this is that you, as "independent" directors, could have prevented this unfortunate outcome.  You passed up numerous opportunities to refinance the Icahn-owned credit facilities during perhaps the most attractive credit markets in history from 2004 to early 2008 and continue today to forego any refinancing options in an apparent attempt to ensure that the company has no options other than to look to Mr. Icahn for help every time it needs money.

We were truly aghast when we learned that a few years ago one of the potential bidders valued its combined bid for the assets and the net operating losses at approximately $10 per share.  The fact that the board rejected this offer in favor of the massively dilutive proposal from Mr. Icahn only causes us to question further the true independence of the "independent directors."   As you well know, this board dismissed proposals from FIVE different bidders that would have each likely garnered more value for the minority shareholders than anything Mr. Icahn is going to offer.  It is overwhelmingly evident why Mr. Icahn has warned this board not to start a sale process as part of the steps that it would take to evaluate the fairness of his current offer – Mr. Icahn knows that by threatening to block any sale, there will simply be no other bidders.  This is NOT the way to prove the value of this business.  And we are certain the judges in Delaware and New York will agree with us.

Please imagine Mr. Icahn's reaction if he were a shareholder in a company that simply sold itself at a deeply discounted price to its majority shareholder through a sham auction.  Needless to say, he would pull all of the tricks out of his typical playbook – calling for the resignation of all directors, pursuing legal remedies, public diatribes, etc.

The only reason we can fathom that a director would allow Mr. Icahn to succeed in his continuing attempt to disenfranchise minority shareholders would be because of the relationships that the directors have with other entities controlled by Mr. Icahn.  We did a cursory review of public information and found that the "independent" directors have numerous other connections with Mr. Icahn and his related entities:  

Mr. Knauss:

• Current Director of WestPoint International – a company owned by Mr. Icahn's entities
• Past Chairman of the Board of Philip Services – a company owned by Mr. Icahn's entities
• Mr. Icahn's director nominee in his proxy contest against VISX Technologies

Mr. First:

• Past Chief Financial Officer of Icahn Holding Corporation
• Current Director of WestPoint International – a company owned by Mr. Icahn's entities
• Current Director of American Railcar Industries – a company owned by Mr. Icahn's entities
• Past Director of Philip Services – a company owned by Mr. Icahn's entities
• Past Director of American Property Investors – a company owned by Mr. Icahn's entities
• Past Director of GB Holdings – a company owned by Mr. Icahn's entities
• Past Director of Cadus Pharmaceuticals – a company owned by Mr. Icahn's entities
• Past Director of Marvel Entertainment – a company owned by Mr. Icahn's entities
• Past Director of PANACO – a company owned by Mr. Icahn's entities  
• Trustee for Tropicana Atlantic City Corporation – an entity holding Mr. Icahn's Atlantic City casino interests

We firmly believe that you are making a mockery of the term "independent committee" and it will be the first thing we will be highlighting to a Delaware and New York judge.  You are not independent!  If you were any more closely tied to Mr. Icahn, you would be immediate family!  

Rest assured, we are going to do everything in our power to ensure that justice is served and that the rights of minority shareholders prevail.  We intend to hold each of you personally liable to the maximum extent permitted by law for the numerous infractions you have committed in trampling the rights of minority shareholders should Mr. Icahn prevail.

Very truly yours,

R2 INVESTMENTS, LDC

SOURCE R2 Investments, LDC