Global’s Network Goes on the Block
Knocked off the radar screen by the woes of bigger telecom rivals, Global Crossing Ltd. puts its vaunted fiber-optic network on the line today in an auction process that will help set the tone for what buyers will pay for the glut of distressed properties in the ravaged industry.
A key bid will come in a joint offer from brothers Tom and Alec Gores--the first time the two Los Angeles financiers will be combining forces. They have separate investment firms that sometimes vie against each other for failed businesses or units that larger companies are selling.
Sources at both firms said the value of their offer of cash, notes and equity would be substantially higher than the initial bid by two Asian companies that proposed $750 million in cash for 79% of Global Crossing. In that deal, creditors would have received $300 million and a 21% stake, a deal they rejected as inadequate.
“We don’t see any obstacles that will prevent us from making a bid, but the final dotting of the I’s and crossing the Ts is still going on,” one source said.
Bidders, from the Gores’ operations to telecommunications firms, must submit offers for all or part of Global Crossing by noon. Global and its bankers and creditors will then start evaluating ways to get the most money out of the proposals.
Fewer than 10 bids are expected, none from major carriers and only a handful serious enough to act on, industry experts said. With assets at other troubled telecoms such as WorldCom Inc. and Qwest Communications International Inc. coming on the market, many potential buyers are looking more for the customers they can gain than for the fiber, they said.
“I wouldn’t call it a very enthusiastic crowd,” said Alex Mou, an analyst at Hotovec, Pomeranz & Co. in San Francisco. “Clearly, no one is putting in a lot of money for the bids. Additional dollars will be needed to run the company, and investors already have been burned in telecom deals.”
Even an offer of $1 billion in cash would mean less than 10 cents on the dollar to bondholders and other creditors who are owed $12.4 billion. To entice them, analysts and investment bankers said, a buyer is going to have to demonstrate that it can run the company and make it financially viable.
Whatever the offers are, they will be the base for sales other companies are planning.
“Fair or unfair, it will be a reference point for similar transactions in the future. That’s the nature of this game,” said John Buck, a director at TenX Capital Partners in Conshohocken, Pa., which will decide this morning whether to bid on Global’s teleconferencing business or the entire business.
Some investment bankers, however, believe that Global’s operations can’t be compared to WorldCom’s or Qwest’s, and its assets would be priced lower. Although Global has a cutting-edge network connecting 200 cities in 27 countries, it has only 85,000 commercial customers. WorldCom has 20 million residential and commercial customers. And customers are needed to fill the industry’s fiber-optic lines that are working at only 40% of capacity worldwide.
That’s one big reason no-shows at a Global Crossing sale may include healthier telecoms such as AT&T; Corp. and Verizon Communications Inc. AT&T;, though, could use Global’s European network to fill out its own lines there, and Verizon could get a big boost into long-distance with Global’s North America system.
Tom Gores’ Platinum Equity operates NextiraOne, a telecommunications company that designs, installs and manages telecom systems for 400,000 customers. Offering bundled packages that include long-distance lines would help to fill Global’s cables.
While the Gores brothers will be making an offer for the core network, other companies such as TenX and ValueLogix Inc. in Rochester, N.Y., may try to pick off smaller chunks of Global’s business that don’t fit in with the network.
ValueLogix also will be bidding for Global’s teleconferencing business, which coordinates large numbers of calls for meetings.
Other potential bidders include Mexican tycoon Carlos Slim and a related company, Telefonos de Mexico, as well as buyout firms such as Texas Pacific Group and telecom firms from the large Infonet Services Corp. in El Segundo to the small Fiber Optek Interconnect Corp. in New York.
Global’s chief executive, John Legere, has said the company has attracted some attention from foreign firms.
“There is at least one major Latin American player, and the other is a European player with great assets in Latin America,” Legere said in an interview published this week in America Economia.
Legere would not comment Wednesday.
IDT Corp., which last week publicly offered to buy several of WorldCom’s operations, had expressed interest in Global Crossing early in the process. Executives at the New Jersey company did not return calls seeking comment.
In addition, Global founder and Chairman Gary Winnick is trying to line up investors to help revive the company.
