High-flier IDB Communications Group comes in for crash-landing.

It's a rags to riches to rags story and IDB Communications Group Inc. of Culver City is its main character.

The one-time darling of Wall Street financial houses as well as individual investors is about to undergo a major change, ending a glorious run that turned sour in the last six months and last week took another turn for the worse when IDB set aside more than $75 million to settle shareholder suits.

By the end of the year, the company's proposed acquisition for between $700 million and $1 billion by another telecommunications company -- LDDS Communications Inc. in Jackson, Miss. -- will come up for a vote by IDB's shareholders. The shareholders are expected to approve the sale but it could be close because there is a lot of dissatisfaction among IDB's investors, 22 of whom have filed lawsuits against the company.

The latest bad news about IDB came last week when for the second consecutive quarter the company reported a significant loss. Previously, it had been on a steady climb since its founding in 1983 -- a climb that had been very profitable for its investors.

For the third quarter ended Sept. 30, the company reported a loss of $154.6 million, or $2.08 a share, on revenues of $131 million. In the second quarter ended June 30, IDB reported a loss of close to $20 million, or 27 cents a share, on revenues of $132.5 million.

Firm posts hefty losses

Despite a first-quarter profit of $4.1 million, IDB last week said that in the first nine months of the year, it lost more than $170 million on revenues of $378.1 million.

The company's travails have also been vividly displayed in its stock, which is traded on NASDAQ. In recent weeks, the price rebounded to about $9 after falling 66 percent from $15 to $5 earlier this year. In mid- to late-1993 IDB shares topped $40, reflecting the strong positive feelings investors had about the company that relays telephone and television signals around the world.

Wall Street analysts were routinely predicting the sky was the limit on an IDB investment. At the end of 1993, analysts were singing the praises of the company and predicting its stock could go as high as $70 a share.

Revenues were projected to grow by 50 percent in 1994, with earnings up by more than 70 percent. Those projections were based on 1992-93 growth in earnings, revenues and stock values that ranged on a quarterly basis by as much as 100 percent.

The company was on a tear, with new deals and agreements being announced on a regular basis and countless stories in the business press about the glories and potential of IDB.

Beauty turns into beast

Then last spring, the company founded by IDB Chairman Jeffrey Sudikoff with a $15,000 car loan was transformed from a darling into an ogre.

The slide was touched off by the very public resignation of the company's accounting firm, Deloitte & Touche. The accounting firm quit in a dispute with IDB executives over its accounting practices. In the end, Deloitte & Touche was vindicated and IDB revised downward by 33 percent its first quarter 1994 earnings and vowed to change its overall accounting practices.

IDB COMMUNICATIONS INC.
(IDBX/NASDAQ)

Quar Sept. 30:               1994      1993

Revenues                     $131       $77
Net income                  ($155)      ($2)
Avg shares                     60        74
Shr earns:
Net income                 ($2.08)   ($0.04)

Closing price Nov. 16

$9.1875
Down $0.06

52-week

High         Low
$20.50      $5.25

All figures except for Share earns in millions.

Investors speculated that IDB had been inflating its earnings for some time to drive up its stock price and position itself to grow through acquisitions, a charge denied by Sudikoff and company President Edward Cheramy.

In August, IDB said it had agreed to be purchased by LDDS. The price is contingent on the value of IDB stock on the closing date but general estimates are that the deal will be somewhere between $700 million and $1 billion.

Last week, one industry source who did not want to be identified described IDB's latest round of bad financial news as "part of the cleansing process as it prepares to be sold."

Provision clobbers net

Peter Hartz, senior vice president of the company, said a good chunk of the second quarter loss of $154 million is connected to the proposed sale. But he also acknowledged that most of the loss is connected with shareholder suits following the resignation of Deloitte & Touche. According to the company's third quarter statement, $76 million has been set aside as a possible settlement for the shareholder suits that have been consolidated into two lawsuits.

If the purchase goes through, creating one of the largest telecommunications companies in the country, it will mean a different structure for a hometown company that has grown up in cramped and unassuming offices surrounded by satellite dishes and antennas on Washington Boulevard.

Hartz said IDB is now preparing a proxy statement that will be sent to shareholders in the next couple of weeks outlining the proposed sale and the date for a vote on the transaction.

"We're in the quiet period now but everything will come out in the proxy," he said.