U.S. Drops Global Crossing Contract
The Defense Department canceled a data and communications contract Friday with Global Crossing Ltd. that was worth up to $400 million, sending the company’s shares to a record low before they recovered slightly.
The three-year contract, awarded to the Beverly Hills-based telecommunications firm a month ago, was valued at $137 million for the initial phase and more than $400 million if Global Crossing won the possible contract extensions.
On Friday, investors learned that the Defense Department planned to rebid the contract, which calls for an extensive phone and data network linking more than 6,000 scientists and engineers at far-flung defense test centers, laboratories, universities and industry locations.
Friday’s sell-off began with a report from analyst Dan Reingold of Credit Suisse First Boston, who said the contract was to be rebid and implied that the reversal might be related to Global Crossing’s technological qualifications.
Trying to ease investor fears, Global Crossing issued a statement saying the contract award was being challenged by competitors that lost out. The company said that the Defense Department took the action to “address procedural issues in the procurement process” and that the company expects to win back the contract. Company officials declined to comment beyond the statement.
If the first phase of the contract were to come in one year, that $137 million would equal about 3.6% of Global Crossing’s 2000 sales of $3.8 billion.
Other bidders for the contract were believed to be AT&T; Corp., Qwest Communications International Inc., Sprint Corp. and WorldCom Inc.
Frank Governali, a telecommunications analyst at Goldman, Sachs & Co., said in a report that the problem was a procedural one, and that “by the end of the 90 days this process will take, we fully expect [Global Crossing] to win this contract again.”
The dueling remarks caused confusion throughout the day, with Global Crossing initially saying the contract technically had not been canceled but that the company expected it to be rebid.
“All I know is that investors are disappointed with the contract loss,” said Patrick Comack, who follows Global Crossing for Guzman & Co. “Although it was a small win in terms of money, it was a big win in terms of prestige. . . . When they won this, it said a lot about the quality of the network and their technology as well as their long-term viability.”
Global Crossing’s shares fell to a record low of $4.34 before rebounding somewhat to close at $4.98, down 28 cents, or 5%. The stock was traded heavily, with about 22.6 million shares changing hands during the New York Stock Exchange session Friday, more than double its three-month daily average.
For the last year, the company’s shares have been hammered by bad telecommunications news, worries about losses and competition. The company’s stock has been hit hard in the telecommunications downturn, falling 87% since its 52-week high of $37.75 on Sept. 5.
Gary Winnick, the company’s chairman, founder and largest stockholder, has seen the value of his stake fall to $393 million from $5.79 billion at its peak.
