Merger Off for Global Crossing and Sister Firm
After a month of negotiations, telecommunications companies Global Crossing Ltd. and Asia Global Crossing Ltd. have scrapped merger plans because of their precariously low stock prices and shareholder concerns about the deal.
Global Crossing, based in Beverly Hills, announced the preliminary merger talks in early October as part of a major companywide restructuring. The company simultaneously announced employee layoffs and office closures and substantially reduced its financial projections for the quarter ended Sept. 30.
Though terms of the merger were not yet set, board members of each company had agreed to proceed with talks, declaring that the combination would save an estimated $10 million to $25 million and would smooth sales to corporate customers who want worldwide telecommunications connections.
The two companies have overlapping shareholders and board members and work together to provide global data and telecommunications connections. Asia Global Crossing’s largest shareholder remains Global Crossing, which owns 59% of the company. Microsoft Corp. and Japan’s Softbank Corp. also are sizable investors.
Wall Street, however, was not impressed. The stock prices of both companies--already at record lows--plummeted still further. The day the potential merger was announced, Global Crossing shares fell 49% to $1.07, and Asia Global Crossing shares fell 47% to $1.15. Two days later, the companies’ shares traded at less than 50 cents each.
Although the share prices have since recovered somewhat, both companies’ valuations remain about half their pre-merger talk levels. That was a big issue in the talks, according to Dan Cohrs, Global Crossing’s chief financial officer.
“You have two very low stock prices and a group of shareholders that are not in the best moods anyway,” Cohrs said. “The Global Crossing shareholders were very worried about how much dilution they might have [in their ownership], and the shareholders who invested in Asia Global Crossing are saying, ‘We think it’s worth more’--there was just no way to make both sets of shareholders happy.”
Cohrs said the companies might revisit the merger idea if conditions improve. For now, however, the two will continue independently, focusing on reducing costs and boosting revenues amid sharply lower demand for communications services.
Global Crossing took another cash-saving step Monday, announcing that it will pay a dividend to holders of its senior exchangeable preferred stock in preferred stock instead of cash. Cohrs said the move will save Global Crossing about $26 million.
In New York Stock Exchange trading Monday, Global Crossing shares closed at $1.14, up 6 cents, and Asia Global Crossing shares closed at 86 cents, up 4 cents.
