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BEHIND THE NEWS: Ex-devotee of Brightpoint now on other side of table

January 15, 2007

Durham, who bet big on Brightpoint when it was near financial ruin, now is part of a group that is among the largest shareholders in Texas-based Cellstar Corp., a rival wireless phone distributor buffeted by nearly $200 million in losses from 2002 through 2005.

In December, Cellstar announced plans to liquidate, with Brightpoint Inc. acquiring the bulk of its business-its U.S. and Latin American operations-for $88 million.

Analysts say it's a savvy deal for Brightpoint, which picks up $450 million in revenue, takes out a competitor, and strengthens its relationship with Illinois-based Motorola Inc., whose slim Razr phone shook up the industry after its 2004 debut.

It's also a defensive play, according to Jefferies & Co. analyst Bill Choi. The line between cell phones and other wireless gadgets continues to blur, he noted. Buying the business keeps it out of the hands of another tech distributor that could use it as a springboard into the phone business.

But Durham, 43, is underwhelmed and says his group, which amassed 10 percent of Cellstar's stock over the past two years, may explore more lucrative options. When it announced the liquidation plan-including the Brightpoint deal and a separate, $20 million sale of its Mexican operations-Cellstar said its stockholders likely would reap no more than $3.25 a share and might get less.

"Our initial, first-blush reaction is, this is significantly lower than we thought it was worth," Durham said.

Not that Durham's group wouldn't make money on the deal. Securities and Exchange Commission filings show it paid $2.5 million-or an average of $1.23 per share-for its 2.05 million shares. But Durham says his group thought the company was worth $6 or $7 a share as an ongoing business.

He noted that the company finally has stanched the red ink and posted a $5.8 million profit through the first three quarters of 2006. He said it often takes a year or more of solid earnings before a troubled company rekindles investor enthusiasm, propelling a stock price higher.

"I think this board from Cellstar is fatigued. They've been in this company a long time" and may have been eager to move on, Durham said.

His group doesn't know enough yet to support or oppose Cellstar's liquidation plan, he said. He learned more when he met with Cellstar management Jan. 4, but he wants to review the detailed financials that will be sent to stockholders before this spring's shareholder vote.

If his group ultimately opposes the Brightpoint deal, he'll find himself at odds with Brightpoint CEO Robert Laikin, who orchestrated the company turnaround that made Durham his fortune.

"It's an interesting dichotomy," Durham acknowledged. "I don't want to say we are at odds, but we are certainly on opposite sides of the table right now."

Laikin called Durham's disappointment misguided.

"We believe the offer for the assets we are buying are at the highest level that anyone would pay. We think it's fully priced, if not overpriced. We thought strategically for our company it was worth overpaying a bit," Laikin said.

He noted that the Brightpoint deal and Mexican deal will bring in $108 million-or $5 per Cellstar share. But that's before factoring in Cellstar's liabilities, including loans and any fine it might face stemming from an ongoing SEC investigation.

"To me, the Cellstar management did a good job getting top dollar for the assets they have," Laikin said.

Tuning into Smulyan

One thing you can say about Jeff Smulyan, CEO of Emmis Communications Corp., is he runs a lively conference call.

On his Jan. 9 quarterly call with analysts, Smulyan fired back at Elkhart money manager Frank Martin, who wants the Indianapolis-based company to ditch a special class of stock that gives Smulyan voting control even though he owns less than 20 percent of the company's shares.

Martin wants shareholders to approve his proposal at the company's annual meeting Feb. 13. In the meeting proxy, the Emmis board doesn't take a position. It says the issue is moot because such a change would require Smulyan's OK, and he won't grant it.

"It's obviously something I wouldn't do," Smulyan added on the call. "I don't think there are many companies in America that would do that. To us, it's sort of like changing the rules of the game midway through. Obviously, Mr. Martin bought all his stock knowing there were two classes of stock."


Durham Smulyan
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