Why GTT Communications Is Up Big Today

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What happened

GTT Communications (NYSE: GTT) rose as much as 32% in early morning trading on Tuesday. Shares of the networking and telecommunications company were up about 12% as of 1:05 p.m. EDT. Investors can thank Dan Loeb, an activist hedge fund manager, for today’s jump.

So what

Loeb’s hedge fund, Third Point LLC, recently disclosed in a regulatory filing that it now owns more than 3 million shares of GTT Communications. That represents more than 5.5% of shares outstanding.

Businessman fanning out hundred-dollar bills in his hand

Image source: Getty Images.

GTT’s stock recently crashed in the wake of its most recent earnings, so traders appear to be gleeful about the prospects of Dan Loeb stepping in. Loeb is an activist investor with a track record of getting troubled companies to improve their operations.

Now what

Loeb has his work cut out for him. GTT recently reported just $34 million of cash on its books at $3.2 billion in long-term debt. The company has pledged to sell off noncore assets to reduce its debt burden, but it’s unknown what kind of prices it will be able to fetch since it will be a distressed seller.

Activist investors can often unlock shareholder value, but some companies are in such rough shape that they are simply beyond repair. Only time will tell if Third Point will be able to help successfully turn GTT around.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.