Reston-based XO Communications Inc. announced yesterday that it has made a $700 million offer for Global Crossing Ltd., an international telecommunications company that filed for bankruptcy protection last year.
The offer from XO, which itself was acquired out of bankruptcy court by financier Carl C. Icahn in January, includes $250 million in cash and is intended to trump an existing bid by Singapore Technologies Telemedia PTE.
Icahn, a financier who has a history of using the bankruptcy process to amass troubled companies, has turned his attention to the telecommunications industry in recent months. The sector is in a downturn and analysts and investors have long been waiting for the industry to consolidate.
"We just think there's a window of opportunity here," Icahn said in an interview yesterday. Although richer, at least on paper, than Singapore Technologies' bid, Icahn's offer for Global Crossing is still a fraction of the more than $50 billion value of the company at its peak. Global Crossing declined to comment on the offer.
Global Crossing was founded in 1997 and quickly became a huge international force by laying fiber optic cables across the Atlantic and Pacific oceans, greatly increasing the ability to transmit data and voice communication around the world. The company's value sky-rocketed during the Internet boom era of the late 1990s but its luster faded just as quickly. Other companies began to build parallel networks, producing a glut in capacity that drove prices down and ultimately forced Global Crossing to file for bankruptcy in January of 2002.
Icahn said XO's domestic network fits in neatly with Global Crossing's international reach. "There's good synergy, because we might be able to offer long distance," Icahn said.
Icahn sent a letter to bondholders detailing the plan yesterday after being approached by a Global Crossing creditor group earlier in the week. Icahn has taken advantage of the bankruptcy process in the past to acquire casinos, hotels and airlines.
Under the terms of XO's offer, the company's creditors would be paid $250 million in cash plus another $200 million in notes secured by Global Crossing's assets. In addition, the creditors are being offered $200 million in preferred stock and 15 million five-year warrants to buy new XO stock at $10 per share.
XO is not the only company interested in Global Crossing. U.S. long-distance carrier IDT Corp. has previously said it is willing to buy the company for $255 million in cash.
In making its bid, XO touts the fact that it is a U.S.-based company. Singapore Technologies' effort to gain control of Global Crossing has run into trouble with U.S. regulators who have raised concerns about allowing a foreign-owned company to run an American-based telecommunications network.
Originally, Singapore Technologies had made its offer in tandem with Hutchison Telecommunications Ltd. Hutchison dropped out of the bidding earlier this month after a special government committee reviewing the sale raised questions about the Hong Kong-based company's ties to the Chinese government. The Committee on Foreign Investment is continuing to review Singapore Technologies bid.
Both Global Crossing and XO would clearly benefit from a merger, said Timothy K. Horan, an analyst with CIBC World Markets. "The industry needs to be consolidated, and it needs smart investors like Icahn to consolidate it," he said.
The assets also come relatively cheap, said Friedman, Billings, Ramsey & Co. analyst Susan Kalla of Icahn's offer. Global Crossing spent $20 billion to build the network, so "it's certainly worth more than a few hundred million," she said.
Icahn indicated yesterday that if he succeeds in acquiring Global Crossing, the industry may have to rely on others to continue the trend toward consolidation.
"We looked at a bunch of [assets]. This would be a lot to digest. I think that would put an end to [the shopping] for a while, at least," Icahn said.
