Global Crossing Ltd. agreed to sell a majority stake in the company for US$250 million to Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte, the same suitors that offered three times as much in January for a bigger share of the fiber-optic network operator.
When Global Crossing filed for bankruptcy on Jan. 28, it agreed to a takeover by Hong Kong-based Hutchison and Singapore-based ST Telemedia, which then offered US$750 million for a 79 percent stake. A month later the offer was rejected by creditors, and Global Crossing sought a better deal in an auction.
Global Crossing and creditors settled for a lower price as demand for fiber-optic lines and communications slumps, analysts said. The company, founded in 1997 by Gary Winnick, filed for bankruptcy after it couldn't generate enough sales to repay US$12.4 billion in debt amassed to assemble its 27-nation network.
"There's still so much more supply than demand out there," said Rory Buchalter, an analyst at Dominion Bond Rating Service Ltd. in Toronto.
US regulators are investigation allegations that Global Crossing, like rivals WorldCom Inc and Qwest Communications International Inc, misreported revenue and misled investors.
The agreement was backed by creditors, and US Bankruptcy Judge Robert Gerber in New York approved it.
Hutchison and ST Telemedia will pay US$250 million for 61.5 percent of a reorganized Global Crossing. Creditors will get US$300 million in cash, US$200 million in notes and 38.5 percent of the company.
The notes will be issued by the reorganized company. The cash includes US$250 million from the buyers and US$50 million from Global Crossing, Senior Vice President Chris Nash said in an interview.
The deal reflects the ``challenging environment'' of the telecommunications industry, said Alan Brilliant, a lawyer for Global Crossing's bank group, which includes JP Morgan Chase & Co. "Obviously, the bank group hoped for a better result."
"It is a significant cash investment that will fuel the company's Chapter 11 reorganization," said Paul Basta, an attorney for Global Crossing.
A lawyer for Global Crossing's creditors, Edward Weisfelner, said the company may emerge from bankruptcy in the first quarter of 2003. Hutchison and ST Telemedia saidthat they will "complement Global Crossing's unmatched global network."
"Global Crossing presents an attractive business prospect," said Canning Fok, managing director at Hutchison, controlled by Hong Kong billionaire Li Ka-shing. Its investment "is in line with our vision to be a leading global telecoms player."
Global Crossing fielded interest from several parties, Chief Executive Officer John Legere said in an interview, without naming them. Bank One Corp's private equity unit was "involved" in the bidding, Bank One CEO Jamie Dimon said yesterday.
In recent weeks, Level 3 Communications Inc expressed interest in Global Crossing, people familiar with the matter said.
Private-equity firms Platinum Equity LLC and Gores Technology Group made a joint bid for the company. The offer from Hutchison and ST Telemedia "was seen to provide the value that the bankers, creditors and the company would support," Legere said. "This company is emerging with very strong strategic and financial backers that are going to give us the chance to do what this company was created for."
Hamilton, Bermuda-based Global Crossing amassed debt as it laid fiber-optic cable for sending calls and data all over the world. The 160,000km fiber-optic network, the world's largest, spans five continents. The company listed US$22.4 billion in assets when it filed for bankruptcy.
Hutchison and ST Telemedia had said they wouldn't participate in a public auction of the company, said Arthur Newman of Blackstone Group, Global Crossing's investment banker.
"We scoured the world for potential bidders," Newman told Gerber today. Newman said only three credible bids were made.
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