Icahn's XO to Bid for Global Crossing

Reuters | May 30, 2003 | Jessica Hall

[HAL9000]

PHILADELPHIA (Reuters) - XO Communications Inc., the telephone company controlled by billionaire investor Carl Icahn, said on Friday it has offered more than $700 million to acquire bankrupt high-speed communications company Global Crossing Ltd.

Singapore Technologies Telemedia already has an agreement to pay $250 million for a 61.5-percent stake in Global Crossing, which filed for bankruptcy protection in January 2002 under a massive debt load, a glut of high-speed network capacity, and slim demand.

The bankruptcy court must rule on the deal with Singapore Technologies before any new bids for Global Crossing can be considered. IDT Corp., a telecommunications company that has acquired the assets of several financially troubled rivals, also has said it would bid for Global Crossing

Global Crossing's network reaches 27 countries and its assets were once valued at $22.4 billion. But the long telecommunications slump has destroyed the value of long-distance networks, making opportunistic investors such as Icahn eager to buy assets for pennies on the dollar.

XO, based in Reston, Virginia, said its $700 million offer is comprised of $250 million in cash, as well as secured debt, junior preferred stock and warrants.

It said its offer would provide Global Crossing's banks and bondholders with the same amount of cash and new debt as the Singapore Technologies deal, while boosting equity proceeds by more than $100 million.

Global Crossing, which faces an accounting probe by the Securities and Exchange Commission and other governmental authorities, declined to comment.

Singapore Technologies became the sole investor slated to gain control of Global Crossing after Hutchison Whampoa Ltd. walked away from the deal last month.

U.S. national security officials balked at Hong Kong-based Hutchison's ties to China, and some analysts have said the Singapore Technologies deal still may spark objections from U.S. lawmakers. The company is a unit of Temasek Holdings Ltd., the investment arm of the Singapore government.

XO contended its proposal could close "without regulatory headaches or financing contingencies."

XO, which emerged from Chapter 11 bankruptcy protection in January, last month hired Carl Grivner, Global Crossing's operations chief, as its new chief executive officer. Icahn is XO's chairman.

Earlier on Friday, Global Crossing reported a narrower monthly net loss in April compared with March even as its revenue fell slightly.

It said its net loss for April was $75 million, down from a loss of $89 million in March. Its revenue for the month fell slightly to $228 million from $231 million in March.

[Paul_B]

Here's a really good article on this proposal, detailing the actual terms of the deal and the context in which it is made.

http://www.washingtonpost.com/wp-dyn/articles/A59941-2003May30.html?nav=hptoc_tn

The STT offer is still on the table, and has not been done; STT, being foreign, arouses the concern of regulators, who don't want US telecommunications in non-US hands.

Icahn seems to be making a very astute play here, and is outbidding IDT. If it goes through he has a chance to be on the ground floor of international consolidation in the industry, and will be there on the cheap.

[eno_]

GX owns gobs of submarine cable. I wonder what it costs to maintain their network.

The problem with a lot of network operators is that they bought gear that is expensive to run, and they entered into leases that need to be broken if they want to control costs. A lot of telecom deals are bad deals at any price.

[Paul_B]

> A lot of telecom deals are bad deals at any price.

Or at least they were, when the industry was expanding wantonly. But now as the dust settles after the bust, someone is going to have to be left standing, operating the cables. ISTM that this is the time to make the play, when prices are dirt cheap.

[eno_]

If the cost of operating an exiting network is higher than abandoning it and starting from scratch, it is less than worthless.

This "upside down" position can be caused by expensive leases for cell sites, cable landing points, maintenence contracts for equipment, etc.

Many DSL CLECs, for example, have unfavorable leases (many far in arrears) with ILECs. The DSLAMs in those cages will cost more to bail out than it would to abandon them and buy them back at auction.

[pttttt]

Also see http://www.freerepublic.com/focus/f-news/923341/posts

[Calpernia]

Thanks!