Global Crossing to Be Sold at Bargain-Basement Price
Global Crossing Ltd., once worth more than $50 billion, agreed Friday to sell a majority share in the company for a mere $250 million, giving a company controlled by Hong Kong billionaire Li Ka-shing the world’s largest fiber-optic network and leaving banks and other creditors with a tiny fraction of the $12.4 billion they are owed.
The price tag underscores the steep devaluation of telecommunications assets in recent months as conditions in the industry have worsened, and also marks the beginning of the final chapter of the nation’s fifth-largest bankruptcy case.
As recently as late May, Li’s Hutchison Whampoa Ltd. and partner Singapore Technologies Telemedia were offering $750 million in cash for a 79% stake in a restructured Global Crossing. But that offer was rejected by creditors as inadequate, and other offers weren’t accepted.
The new bid, backed by creditors and approved early Friday by Bankruptcy Judge Robert Gerber in New York, gives the company $250 million in funding and gives Global Crossing’s banks $300 million in cash along with a 6% stake in the restructured company. Hutchison and STT would get a 61.5% stake and other creditors would split an equity stake of 32.5% and $25 million in new debt.
Holders of Bermuda-based Global Crossing’s stock, once worth more than $62 a share, will get nothing.
“This is a good thing for the buyers, because they get a very robust set of assets at a super-basement price--over 100,000 miles of fiber in 27 countries and 200 cities,” said Roger Wery, a telecommunications specialist at consulting firm PRTM.
Noting the sharply lower final bid, Wery added: “Somebody must regret the decision they made earlier” to reject the initial offer. The low price also “drags down the value of the rest of the market” at a time when WorldCom Inc. and several other telecom firms are either in bankruptcy or teetering on the edge of financial collapse.
In a statement, Hutchison and STT executives said their offer “represents the best outcome” for Global’s creditors, customers and employees.
Global Crossing Chief Executive John Legere said Friday that he didn’t regret passing up the higher offer from Hutchison and STT: “It’s all in the rearview mirror. I think the end result for the banks and the creditors and for the company is a great one.”
Michael S. Pascazi, president of Fiber Optek Interconnect Corp., which expressed interest in buying Global but was never taken seriously, strongly disagreed.
“The whole thing smacks of desperation ... and the gain to the Hutchison group will be staggering,” Pascazi said. “Are creditors and bankers so fearful of tomorrow that they’ll take whatever they can today?”
The deal with Singapore-based STT and Hutchison still must win regulatory and legal approvals and then pass muster as the heart of Global Crossing’s final restructuring plan.
Global Crossing’s buyout could reignite concerns in Washington about critical telecommunications infrastructure being purchased by foreign companies. Earlier this year, several lawmakers objected to the first deal with Hutchison and STT, noting that Hutchison owner Li has close ties with the Chinese government.
Li is among the richest men in Asia and presides over a global empire that includes telecommunications and real estate companies as well as supermarkets and the world’s largest private port.
Legere said he believes regulators and Congress now will look more favorably on a Hutchison-STT deal “if it can help keep competition and allow some of the critical national assets, like ours, to survive.”
Global Crossing plans to file its plan Sept. 16, and hopes to win court approval and emerge from bankruptcy protection in late January. The company will keep its teleconferencing unit, its network in Britain, and Global Marine, which builds, maintains and repairs undersea fiber networks. All three had been for sale, but offers for them were deemed too low. Legere and other Global Crossing managers, most of whom have received lucrative retention bonuses, would get an 8% stake in the reorganized company.
As part of the deal, the Asian firms will take over Global Crossing’s 58.5% ownership in Asia Global Crossing, which operates a fiber network serving parts of Asia. Until recently, Hutchison and STT both had partnerships with Asia Global, fueling speculation that the two companies will move to invest in Asia Global separately.
Asia Global, also based in Bermuda, has embarked on its own fund-raising effort, and could end up in bankruptcy itself as part of a comprehensive restructuring. Asia Global is said to be looking for about $250 million in funding and is reviewing several potential investment offers.
“Asia Global Crossing still does not have a fully funded business plan, so our restructuring process is continuing,” said Madelyn Smith, a company spokeswoman.
The smaller subsidiary ran into financial difficulty when Global Crossing reneged on a deal to provide Asia Global with $400 million in funding.
Since then, Asia Global has stabilized its balance sheet by renegotiating terms with its banks and raising money through the sale of stakes in several partnerships.
When it emerges from bankruptcy, Global Crossing will be a far different--and smaller--company, with little or no involvement from Gary Winnick, the Los Angeles financier who presided over the company since its founding in 1997. Winnick will not have shares in the new firm, according to Legere, but he will remain chairman and a board member until the company completes the bankruptcy process.
Winnick came under intense criticism as details emerged of Global Crossing’s woeful financial condition and the millions of dollars the firm paid out to executives in salaries and bonuses. He also has been lambasted for spending lavishly at the company and then cashing out more than $575 million in stock.
While Winnick’s salesmanship won the company billions of dollars in funding to build the firm’s massive network, Global Crossing never made a profit and the Securities and Exchange Commission, the FBI and Congressional investigators are looking into whether its executives used accounting schemes to mislead investors about the company’s deteriorating condition.
Crippled by hefty debt payments and an industrywide meltdown, Global Crossing filed for bankruptcy Jan. 28, becoming the first in a series of telecom disasters that attracted intense scrutiny from Congress and federal regulators. The company listed $22.4 billion in assets and $12.4 billion in debts, making it the nation’s fourth-largest Chapter 11 filing at the time. WorldCom’s bankruptcy filing in July made Global the fifth-largest such case.
The Hutchison-STT agreement came after weeks of scrambling to collect and review bids. More than 60 firms initially expressed interest, but that number quickly narrowed to a handful of serious candidates. Global Crossing postponed the final phase of its sale six times, and considered a late offer from a group led by David Walsh, who was Global Crossing’s president and chief operating officer until being forced out by Legere last year.
If certain conditions aren’t met or the deal is canceled, the companies can collect a $30-million fee.
