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Comverse plummets 32% on mass layoff announcement

August 15, 2010. Haaretz: Nir Zalik

Comverse is short on cash and will have to fire 500 workers, the company's CEO told staff members in a letter over the weekend.

The company also announced that there would be another delay in the publication of the past several years' worth of financial reports, sending its stock plummeting 32% in New York trade on Friday, with turnover of 32 times its usual daily average. In total, the telecommunications software company lost about $500 million in market value during that one day - going from a valuation of $1.45 billion to $990 million.

The company hasn't fully recovered from the backdating scandal exposed in 2006, and it hasn't published any full financial reports since then. Comverse had said it would make up the shortcoming by this month. Over the weekend, though, it pushed the date back to September.

The company's stock was booted off regular trade on the NASDAQ onto the pink sheets following the scandal, and is now at risk of being delisted altogether if it doesn't start producing financial reports sometime soon.

"These are challenging times," CEO Andre Dahan told employees in the letter, which was also sent to the U.S. Securities and Trade Commission.

Investors had been speculating that the company lacked cash and would need to sell off some of its holdings, but hadn't expected that the situation was so bad.

At the end of January, the company had $448 million in cash, a figure which fell to $371 million by the end of April and then $327 million at the end of July. FBR Capital Markets analyst Daniel Ives told the Wall Street Journal that "the company's spending money like rock stars," which he described as "jaw-dropping."

Comverse predicts it'll have only $100 million by April 2011, and if its plans to bring in cash do not work, it expects to be $50 million in the red for the 12-month period ending January 2012.

The company recently received a vote of confidence from American investor George Soros, who bought an $80 million stake in the company about a month ago, representing about 5.1% - enough to make him an interested party.

Troubled investments

The backdating scandal, which sent company founder Kobi Alexander fleeing to Namibia, where he's still fighting extradition to the United States, cost the company hundreds of millions of dollars - to cover the expense of rewriting years of financial reports along with the legal repercussions. This financial damage is largely responsible for the telecom billing and service provider's current straits; rewriting the reports cost it $39 million, and lawsuits by investors cost it $17 million, it said.

The company will be paying out even more in legal settlements: another $30 million at the end of the month, and $82.5 million in August 2011.

Comverse also has troubled investments: It holds bonds with a face value of $133 million, but a market value of only $40 million.

In order to address the shortfall, Comverse is planning to cut $45 million in operating costs by the end of the year, by firing 500 of its 4,000 workers based around the world. About half of its employees are in Israel.

Following that, the company plans to reorganize, which it says will save itself another $45 million over 12-18 months.

This isn't the first time the company has fired employees due to financial troubles. In February it fired 250 workers, including several dozen in Israel; in March 2009 it fired another 360, including 100 in Israel; and in January 2009 it fired 20 to 30 workers in Israel.

The company will be using Goldman Sachs as a financial adviser, to help it find new ways to bring in cash.

Comverse may be forced to sell off some of its subsidiaries, which include Verint, Ulticom and Starhome. The latter is already up for sale, and Comverse is preparing a prospectus to sell 10% of its holdings in Verint, worth about $60 million.

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