Any comments on this reverse merger?? ITXC: Reit Underperform - We reiterate our UNDERPERFORM rating on ITXC Corp. (ITXC). After spending substantial capital constructing a global VoIP platform and building a global distribution channel, the company has failed to make the leap up the value stack to attack end user recurring revenue streams and capture enough margin to become self-sustaining. Given continued weak results, ITXC has agreed to sell its business to Teleglobe in a reverse merger transaction, whereby its shareholders will receive 28% of the combined $1.1BN run rate global carrier. Under the proposed deal, investors face integration risk, likely pressure from customers rerating their contracts, pricing pressure from restructured competitors like MCI and Global Crossing, lack of FCF+ until 2H04, and a weak balance sheet with roughly $100MM in debt. Further, we believe international settlement rates are collapsing, eliminating the arbitrage opportunity provided by the ITXC/Teleglobe plan and calling into question a wholesale-only strategy.
