Global Crossing a cut-rate deal
By Bruce Meyerson
AP Business Writer
NEW YORK — Once worth tens of billions of dollars, Global Crossing is being sold for $250 million to the same investors who only months ago agreed to pay three times as much for the world's most extensive fiber-optic network.
The agreement announced Friday with Hutchison Whampoa of Hong Kong and Singapore Technologies was approved by the judge overseeing Global Crossing's bankruptcy case.
The deal provided startling proof of how fast the business of fiber-optic networks continues to disintegrate in an environment poisoned by the WorldCom accounting scandal and a global glut of capacity for Web traffic and e-commerce.
It also appears that Global Crossing's lenders and creditors made an extremely costly miscalculation in holding out for a better payoff on their debts, which totaled $12.4 billion when the company filed for bankruptcy in late January.
An outside financial adviser to Global Crossing who was called to testify at a hastily scheduled hearing early Friday said only three credible bids had been received during a lengthy auction process and that bidders were spooked by the ongoing collapse of the business.
"It's a very difficult world today in the telecommunications industry," said Arthur Newman, the adviser, a senior managing director for the Blackstone Group.
Under the original deal with the two Asian firms, announced in January with the bankruptcy filing, Global Crossing's debtholders would have split $300 million in cash and an additional $800 million in new notes from the company.
Now they'll still get $300 million in cash, but only $200 million in notes. They will, however, retain a larger stake of the equity in the new firm: 38.5 percent rather than the 21 percent envisioned under the earlier deal.
Meanwhile, although Hutchison and Singapore will receive a smaller controlling stake — 61.5 percent instead of the 79 percent stake rejected in the first deal — they will only being paying $125 million each in cash rather than the combined $750 million they were willing to pay in January.
Owners of Global Crossing stock will receive no stake in the reorganized company.
Lawyers for Global Crossing on Friday told the court that the company expects to file a Chapter 11 plan of reorganization in September and to emerge from bankruptcy in early 2003, subject to satisfying various contractual and regulatory conditions.
Global Crossing, which was founded by investment banker Gary Winnick in 1997, piled up its debt building a vast worldwide communications network at the height of the Internet boom.
That state-of-the-art network spans 100,000 miles, connecting more than 200 cities in 27 countries around the world.
The system includes 20 percent of undersea bandwidth connecting the United States with the rest of the world, according to the telecom research firm TeleGeography.
One of Global Crossing's most valuable assets is its 59 percent stake in Asia Global Crossing, which operates unrivaled fiber-optic links between Japan, Taiwan, South Korea, Singapore, Malaysia, the Philippines and potentially China.
The Bermuda-based company had hoped to dominate the market for high-speed data communications, and at one point, enthusiastic investors boosted the company's value to nearly $50 billion
While few networks compare in size, the building frenzy of the past few years left a glut of capacity that forced down prices for bandwidth.
At the same time, the collapse of the Web economy eliminated a driving force for the explosion of online traffic that Global Crossing and its rivals were counting on to jam their networks.
Still, even in the current environment, the flow of Web usage and electronic commerce continues to grow at a steady clip.
That reality explains why certain players seem willing to buy Global Crossing's assets for what amounts to a steep discount from their origin al cost, but a hefty price tag nonetheless.
