GTT re-examines books just days from expected Interoute sale

GTT re-examines books just days from expected Interoute sale

13 August 2020 | Alan Burkitt-Gray

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The future of GTT Communications was thrown into uncertainty yesterday as the share price plunged, just days before the company is due to sell its infrastructure operations.

The fall came after GTT said that it would be delaying its results for the quarter ending 30 June 2020, for reasons that were explained vaguely.

In a statement to the US financial regulator, GTT said: “the company identified certain issues related to the recording and reporting of cost of telecommunications services and related internal controls.”

GTT shares, as quoted on the New York Stock Exchange, fell following the statement, closing at US$5.02 on Wednesday afternoon, valuing the company at under $300 million.

This is two-thirds the closing price a month ago, when advisers to GTT told Capacity that bids for the former Interoute and Hibernia Networks were due “imminently”.

Worse, the latest share price means GTT is worth just 10% of what it spent in 2017 and 2018 on Interoute, Hibernia and other acquisitions.

Capacity’s sources said in July that GTT was hoping to announce a sale “by the end of August”, which puts a declaration now about two weeks away.

Following the statement, at least one law firm, based in Los Angeles, advised investors “that the firm has initiated an investigation into alleged violations of securities laws, and may file a lawsuit on behalf of investors”.

Portnoy Law Firm added: “The investigation focuses on whether the company misled investors through alleged accounting fraud.” It said GTT’s audit committee and an outside counsel and consultants were examining “financial statements to see if there are material weaknesses in the company’s internal controls”.

GTT warned shareholders that the review of its quarterly results and its financial controls “removes the ability of the company to reinvest cash proceeds of certain asset sales” – which might mean the proceeds of its infrastructure sale might be locked up rather than being put to use in the company.

In addition, GTT can’t draw more than 30% of its total revolving loan commitments without lenders’ consent.

Share tipping service The Motley Fool warned: “The outcome of this review could range from minor issues that don’t require any restatements to significant problems that drastically change previously reported results. At this point, it’s too early to tell.”

GTT has not said when it expects to file its quarterly report, and says it does not know whether the review will uncover additional issues.

According to The Motley Fool, “the delayed filing prompted analysts at Raymond James to downgrade the stock from ‘outperform’ to ‘underperform’ and withdraw its price target. Raymond James no longer has confidence in the reported numbers, and it expects previously reported results to be restated.”