The article is an interesting summary of creditors and some opinions of the deal at that time (some analysts thought at that time that the creditors were getting a very bad deal). The analysis is based on a $750M offer.
Wonder whatever happened to Lucent's claim that it was owed more (4x) than Global Crossing admitted to?
Link to year-old Global Crossing bankruptcy article
RIGHTING GLOBAL CROSSING'S SINKING SHIP
Toby Weber
Telephony, Feb 4, 2002
Asian dealmaker Li Ka-shing makes a play for submerged optical goods. Given his history and the sector's perilous state, odds are good he'd flip it.
At less than 5¢ on the dollar, the deal negotiated by Hutchison Whampoa and its chairman, billionaire Li Ka-shing, for the purchase of bankrupt carrier Global Crossing has the potential to produce massive gains. But whether those gains will be realized as a long-term investment or through a quick sale remains in question.
Made in partnership with Singapore Technologies Telemedia (STT), the proposed investment is the latest in a string of telecom ventures crafted by Whampoa, which has a history of buying stakes in communications companies and then flipping the equity for a sizable profit.
In 1999, for example, Whampoa sold its 44.8% stake in U.K. mobile carrier Orange to Mannesmann for $14.9 billion, and in 2000, the Hong Kong-based conglomerate executed a similar coup, getting $9.3 billion for selling its 18.4% of VoiceStream Wireless when the GSM carrier was purchased by Deutsche Telekom.
While a spokeswoman for Whampoa declined to comment on the plans for its latest proposed investment, analysts believe the company will seek a similar profit on Global Crossing. For $750 million, Whampoa would acquire a completed global network that cost $7 billion to construct and a controlling interest in more than $22 billion in assets.
The complexities of owning and operating such a network might dissuade Whampoa and STT from operating Global Crossing long-term, said Rudy Baca, global strategist for The Precursor Group. “They've seen that it's very difficult in this market to make money out of being a wholesale carrier,” he said.
In addition, it would be relatively easy for Whampoa to hold onto the assets for a few years, wait for an upturn in the undersea market and then sell the network — complete with customers — for billions in profit.
Such an upswing would enable several of the world's larger carriers to bid for the network, a move U.S-based incumbents might consider after they receive Section 271 approval to offer long-distance services.
“The RBOCs do look like good potential buyers,” said Michael Ruddy, managing director for Terabit Consulting. “Verizon definitely, because they've made significant investments in the undersea space over the last 20 years.”
GLOBAL CROSSING'S CREDITORS Some of the biggest names in telecom have stakes in the bankrupt carrier
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Lucent Technologies - $31,357,050*
Alcatel - $31,056,980
Tycom US - $29,160,213
SBC Communications - $26,840,151
Verizon - $23,963,607
Nortel Networks - $13,802,224
Cincinnati Bell - $13,357,868
Cisco Systems - $12,626,693
Level 3 Communications - $10,112,149
Source: Global Crossing
*Lucent has disputed this figure, claiming it is owed $123 million
But Whampoa has long-term holdings in the communications sector as well, many of which have synergies with Global Crossing's network.
Whampoa is a large equity holder in Asia Global Crossing, an Asian long-haul carrier 59% owned by Global Crossing. In addition, STT owns Singapore communications provider StarHub, which has formed a venture with Asia Global Crossing dubbed StarHub Crossing.
This web of relationships may have played a role in Whampoa's and STT's decision to pursue the investment, said Anthony Christie, vice president of business development and strategic planning for Global Crossing. “They have become familiar with our business strategy, our financial strategy and our operational strategy,” he said.
And protecting Asia Global Crossing would be of particular interest to Whampoa, said Patrick Comack, telecom analyst for Guzman & Co. “
If Global Crossing sinks, Asia Global Crossing is just another pan-Asian network, and it's not unique anymore,” he said.
Though the offer by Whampoa and STT might be defensive, the companies' low bid indicates they might be willing to risk losing Global Crossing.
The $750 million offer is considered to be slightly more than Global Crossing's liquidation value. For that amount, Whampoa and STT would receive a controlling interest between 60% and 80%. Existing equity holders — including Global Crossing Founder and Chairman Gary Winnick, who still owns 8.9% of the company — would see their investments wiped out by the deal. The creditors would split the cash and receive a mixture of new equity and new debt.
According to Comack, Global Crossing's creditors are getting less than what they should. “This was an awful, awful sale,” he said. “If I'm a debt holder, I don't take this deal.”
If such opposition arises, it could influence the bankruptcy court judge overseeing the case because U.S. bankruptcy laws are designed to protect creditors' interests. If debt holders believe they can do better, they may convince Global Crossing to liquidate or sell off assets in piecemeal.
THE 10 LARGEST BANKRUPTCIES (1980 to present)
Company Bankruptcy Date Total Assets Pre-Bankruptcy
Enron 12/2/01 $63,392,000,000
Texaco 4/12/87 $35,892,000,000
Financial Corp. of America 9/9/88 $33,864,000,000
Global Crossing 1/28/02 $25,511,000,000
Pacific Gas and Electric 4/6/01 $21,470,000,000
MCorp 3/31/89 $20,228,000,000
Kmart 1/22/02 $17,007,000,000
First Executive 5/13/91 $15,193,000,000
Gibraltar Financial 2/8/90 $15,011,000,000
FINOVA Group 3/7/01 $14,050,000,000
Source: http://www.BankruptcyData.com
In fact, a spokesman for Howard Jonas' IDT said the carriers had informal discussions with Global Crossing about the assets of Frontier Communications, Global Crossing's U.S. IP backbone. A spokeswoman for Global Crossing declined to comment but said the carrier is entertaining discussions with all interested parties.
At least one debt holder already is disgruntled. Lucent Technologies filed a petition with the bankruptcy court claiming it is owed $123 million, not the $31.4 million Global Crossing stated in its Chapter 11.
In addition to creating potential difficulties with creditors, the low offer could invite competition for Whampoa and STT in a bankruptcy auction, where interested buyers can offer to top the $750 million bid. But there is little consensus as to which company is in a better position to make a competing offer at this time.
At such a low price, Comack believes practically any major carrier could find the resources to top Whampoa's and STT's bid. But others believe the cost and nature of the network would make Global Crossing appeal to a smaller group. Terabit's Ruddy thinks likely bidders are those that already have some sub-sea assets but nothing as extensive at Global Crossing's 101,000 route-mile network — players such as Cable & Wireless, SingTel and Telefonica.
No matter what happens in the bidding process, said Ruddy, “whoever picks it up is getting a very good deal.”
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With additional reporting by Glenn Bischoff, Kevin Fitchard and Amalia D. Parthenios in Chicago.
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