June 4, 2003 -- Cable & Wireless will exit the US market completely and try to sell operations that include at least 12 data centers and more than 2,800 workers, the company said today.
If the unprofitable US assets, cannot be sold, they will be shut down, according to Cable & Wireless, which said it would "consider all options" for disposing of the assets it purchased from Exodus Communications and Digital Island.
New C&W chief executive officer Francesco Caio refused to rule out the possibility that the company would place the US operations in Chapter 11 bankruptcy to reduce its exit costs.
The move comes just seven months after C&W decided to prune its US data center network by closing 12 data centers. At that time, the company considered a complete exit from the US market, but decided against it.
Pressure from investors and continuing losses at the company's Global division led to a change of heart. The American business had an operating loss of $416 million (255 million pounds) in the year ended March 31.
The US web hosting unit is unlikely to ever be profitable, Caio said, citing its cost structure.
"More than 90 percent of the revenues are generated by US customers, and it is a facility based business," Caio said at a news conference yesterday. "On top of that, our cost position is higher than the ones of our competitors ... We don't believe we could ever get to a position of adequate return on our investment. We are out of that business."
That assessment isn't likely to create a stampede of buyers. The primary attraction would be C&W's customer base, which has shrunk significantly since the November cutbacks, which were designed to jettison all customers except "multi-national" enterprises.
If Cable & Wireless cannot sell the business as a whole, it will seek to dispose of it on a piecemeal bases, which would mean selling some data centers and exiting leases for facilities that can't be sold.
Asked specifically if C&W might consider filing Chapter 11, Caio refused to rule it out.
"We're considering all options, and its going to be the least cost one," said Caio.
Bankruptcy allows debtors to reject leases without having to negotiate termination fees, which dramatically reduces the cost of real estate. Cable & Wireless said it has already spent $100 million terminating leases for US data centers. The company said it has closed five of the 12 US data centers targeted in the November cuts, and reduced its workforce in the states from 3,807 to 2,774 employees.
Cable & Wireless bought most of the assets of Exodus Communications in February, 2002. Exodus filed for Chapter 11 bankruptcy protection in Sept., 2001, saying it had overexpanded as it pursued market share. The deal was initially valued at $850 million, but customer attrition reduced the final deal price to about $615 million.
The assets acquired by C&W include 26 of Exodus' 44 operational data centers, with approximately 4 million square feet of gross space, along with 3,200 customers.
Cable & Wireless is a major global telecommunications business with customers in 70 countries and annual revenues of over $11 billion