Nov. 30, 2001 -- Bankrupt managed hosting provider Exodus Communications said this morning that it reached an agreement to sell most of its business and assets to British telecom company Cable & Wireless plc.
The deal, which was described as a "definitive agreement," allows Exodus to reassure nervous customers while leaving the door open to higher bids.
Cable & Wireless, which has long been rumored as a potential Exodus acquirer, will pay $575 million in cash for all of Exodus U.S, Japanese and European customer contracts and employees. Cable & Wireless will also assume $180 million in Exodus' liabilities.
The deal includes 26 of Exodus' 35 U.S. data centers, as well as two facilities in London and one apiece in Frankfurt and Tokyo. Exodus has 3,500 customers remaining, including 46 of the top 150 visited Internet sites, according to Cable & Wireless.
"This is very good news and an important milestone in our journey to emerge quickly from Chapter 11 reorganization," said Exodus Chairman and CEO L. WIlliam Krause.
"This acquisition meets our key investment criteria of value, strategic fit, strong management and high quality products, service and customer base," said Graham Wallace, Chief Executive of Cable & Wireless.
"We are being selective about which of Exodus’ assets we are aiming to acquire – something the Chapter 11 procedure facilitates," Wallace added.
Cable & Wireless said it expects to invest an additional $250 million to bring Exodus to cash flow break-even. It said it estimates the Exodus holdings would become EBITDA positive during calendar 2003.
The deal must be approved by the U.S. Bankruptcy Court, and other suitors will be allowed to make competing bids. In a letter to customers, Krause said Exodus remains open to higher offers.
"Today's announcement doesn't mean this is a done deal," Krause said in his letter. "You should know there are other companies who have expressed interest in acquiring Exodus.
"We also have several financial investors interested in participating with Exodus to emerge as an independent company," Krause. added. "We are continuing to explore the options available to us on both paths."
In the meantime, the Cable & Wireless bid assures anxious Exodus customers that the worst-case scenarios are now off the table. In a conference call with customes on Wednesday, Krause said he realized that many customers were preparing contingency plans with other providers.
The assets included in the C&W agreement include the company's brand name, suggesting that the data centers could continue to operate under the Exodus brand.
"Under this proposal, we would emerge as a new Exodus, stronger then ever, and with the wherewithal to achieve our vision of being the world leader in Internet outsourcing services," Krause told customers..
Exodus filed for Chapter 11 bankruptcy protection on Sept. 26, saying it had overexpanded as it pursued market share. Krause was appointed in September to succeed longtime chairman and CEO Ellen Hancock.
Under Hancock's leadership, the company grew rapidly during the dot-com boom times, but saw its financial condition deteriorate as the Internet and telecom industries slowed dramatically.
"We sacrificed profitability in exchange for growth and market share, over-expanding in some areas in advance of demand, not anticipating the decline as the dot.com bubble burst and the economy weakened,'' Krause said.
The court will now seek to establish bidding procedures in case other suitors emerge. Exodus said it will ask the bankruptcy court to approve the bidding procedures and termination fees on December 13. The company said it intends to seek final court approval of the transaction in January 2002.
Exodus has not used any of the $200 million in debtor financing provided by GE Capital, and Krause projects that Exodus would be cash-flow positive sometime in the second quarter of 2002.
"We intend to become the first company in our sector to reach profitability," said Krause.
Cable & Wireless is a major global telecommunications business with annual revenue of over $11 billion and customers in 70 countries. Exodus is America's largest provider of colocation and hosting services.