Dec. 8, 2003 -- An affiliate of Gores Technology Group will purchase Cable & Wireless America for $125 million through a prepackaged bankruptcy sale, the two companies said today.
The purchase by Gores, a California-based investment firm, allows Cable & Wireless to exit its unprofitable US hosting business, which includes assets bought from Exodus and Digital Island.
Cable & Wireless America said it has filed for Chapter 11 protection to facilitate the sale. During the sale of the company, C&W will continue to operate "business as usual", delivering uninterrupted customer service. The sale will be governed by bankruptcy law, which allows other bidders to make competing offers. If other offers emerge, a court-sponsored auction will determine the winning bidder.
The bankruptcy filing will allow the company to dramatically slash the cost of exiting leases of surplus data center facilities. Under Chapter 11, debtor companies can reject leases for unneeded properties, and renegotiate leases to reduce costs going forward.
Gores is a private investment firm focused on investments in the technology and telecommunications sectors. Recent purchases include The Learning Company from Mattel, Micron Electronics' PC business and VeriFone from Hewlett-Packard. It was mentioned as a potential bidder for Global Crossing.
Under terms of the offer, Gores will pay $50 million in cash and $75 million in a note. The final price may be adjusted based on whether C&W hits targets for working capital, revenue and certain overhead expenses. The companies said they hope to complete the deal, which is subject to bankruptcy court approval, by the end of March, 2004.
The C&W entities filing Chapter 11 include Cable & Wireless USA Inc., Cable & Wireless Internet Services, Inc., Cable & Wireless USA of Virginia, Inc., Exodus Communications Real Property I, LLC, Exodus Communications Real Property Managers I LLC and Exodus Communications Real Property I, LP.
As recently as Nov. 20, C&W CEO Francesco Caio had said a sale of the US unit was unlikely to be completed this year.
Real estate was a critical challenge for C&W in selling its American hosting unit. The company has estimated its US property lease obligations at $667 million, while the hosting operation has an annual operating loss of $425 million. Exiting those leases would require financial settlements with landlords, with some analysts pegging the cost of shutting down the US business as high as $1.3 billion.
Caio today estimated the cost of the exit at $520 million (300 million pounds). To reduce costs, Cable & Wireless will take steps including "network consolidation and rationalization, contract renegotiations and the continuation of previously announced headcount reductions."
Overseeing the process will be John S. Dubel and Eric A. Simonsen, two principals of Alix Partners, a Chicago-based firm specializing in distressed assets. Alix Partners is working with WorldCom In a similar role. Dubel will serve as CEO of the US unit, while Simonsen will be chief restructuring officer and chief financial officer.
"Throughout the sale process, continuity of service will be maintained for our customers," said Dubel. "CWA's products and market position are strong, its technology is leading-edge, and there is significant value in the core business. That is why we determined that a sale of the business was in the best interests of all CWA's constituents and would support the continued development of the business in an expanding market going forward."
Headquartered in Los Angeles, California, Gores maintains offices in Boulder, Colorado; New York, New York; London, United Kingdom; and Zurich, Switzerland.