Bidding War for Global Crossing?
The much-maligned $750-million deal that two Asian companies are offering for control of Global Crossing Ltd. is looking like the opening salvo in what both shareholders and corporate executives hope will be a bidding war for the world’s most extensive network of fiber-optic cable.
Global Crossing, which filed the fourth-largest bankruptcy petition in U.S. history last month after putting $15 billion into 100,000 miles of cable connecting 27 countries, said several bidders have stepped forward already to discuss possible options, but declined to name them. Companies such as AT&T; Corp., Verizon Communications and BellSouth Corp., along with such international concerns as Japan’s NTT and British powerhouse Cable & Wireless, are seen as among the healthiest to pursue Global’s lines.
“Global Crossing’s assets were at one time considered to be the best in the industry,” said analyst Michael Hodel at Morningstar Inc. in Chicago. “I’d be surprised if there isn’t someone around who would make a better offer to buy the assets.”
But with only 40% of about 12 million miles of fiber-optic cable being used, some telecommunications companies are finding it difficult to raise cash, weaker ones are folding, and stronger ones may not think the time is right--or ever will be.
“Everyone is pressed by this glut of bandwidth,” said researcher Ted Chamberlain at Gartner Inc. in Stamford, Conn. “But the future is not going to be in pure bandwidth. It’s going to be in Web hosting and other services that will be provided over the bandwidth.”
Even so, he and other analysts expect that Global Crossing’s network will attract a company--or a group of firms--interested not only in future capacity but in state-of-the-art technology.
“There are companies that can absorb this network, but the first question is who needs it,” said telecom researcher David Cooperstein at Forrester Research Inc. in Cambridge, Mass. “A Sprint, possibly, or BellSouth. Potentially, Verizon.”
Analysts agree that the so-called Baby Bells are in better financial shape and more in need of long-distance capacity than long-haul carriers such as AT&T;, which has its own worldwide network.
None of the potential suitors will comment specifically on Global Crossing assets, but they also are quick to point out that they are prepared to buy. Just last week, AT&T; said it has a $5-billion securities offering on the shelf and ready for use at any time, particularly for acquisitions.
AT&T; has said that it would evaluate “distressed assets” to see if they are worth acquiring, said company spokeswoman Eileen Connolly. “If so, we certainly would consider buying at the right price.”
Verizon, the biggest of the regional Bells and the furthest along in clearing the path for long-distance service for customers in 32 states, isn’t pursuing Global Crossing assets “right now,” said spokeswoman Julia Wilson, “but our eyes are always open to opportunities.”
Officials at Sprint Corp., BellSouth and Pacific Bell parent SBC Communications Inc. say Global’s assets are not priorities for them.
A likely scenario would be for an international partnership to pick up the network, said analyst Chamberlain. But partnerships are often tough to work out. “Cable & Wireless could make a good bid with AT&T;, but they compete with each other on Web hosting,” he said. “The market is so incestuous that for every purchase and partnership you make, you’re jeopardizing another. This [sale] is going to be a mess.”
Analyst Patrick Comack at Guzman & Co. in Miami worries that Global’s executives may have got the best deal possible with Hong Kong conglomerate Hutchison Whampoa Ltd. and partner Singapore Technologies Telemedia. “It may be that nobody is ready to buy now because of the weak industry,” he said.
Regardless, Comack, Hodel and other analysts say they were shocked at the low bid that Global executives filed as part of a reorganization plan. Under the deal, the two Asian companies would put in $375 million in cash each for 79% of the company. General creditors would get $300 million in cash plus $800 million in debt securities for 21% of the company, while bond holders and shareholders would get nothing. In its petition, Global listed assets of $22.4 billion and debts of $12.4 billion.
On Friday, a group of shareholders led by boutique international investment house K.A.B. Group put forth an unusual plan to sell warrants and raise as much as $5.5 billion over three years in a bid to repay all creditors. The proposal was quickly panned by analysts.
Separately, Global’s unsecured creditors committee is seeking information about insider stock sales, executive benefits and swaps of fiber-optic capacity with other firms in the 12 months before the Chapter 11 bankruptcy filing in January. The questions, usual in large bankruptcies, seek to determine if fraud has occurred and the gains could be captured for creditors.
In other Global Crossing developments, Global Crossing Chairman Gary Winnick resigned Friday from the board of Singapore investment firm K1 Ventures, in which he and fellow Global director Steven J. Green invested $12.5 million each. Green, a former ambassador to Singapore, remains chairman and chief executive of K1.
The government-controlled Temasek Holdings owns a third of a company that, in turn, owns 41% of K1. Temasek also owns Singapore Technologies. Winnick spokesman Michael Sitrick said Winnick no longer has time to devote to K1, though he remains an investor.
