January 28, 2002
No silver lining in GX filing
What's the worth of a seamless fiber-optic network connecting 200 cities in 27 countries? Pennies on the dollar, it seems.
Few were surprised by Global Crossing's bankruptcy filing. But today's announcement is unsettling for what it suggests about current valuations for distressed telecom assets. Consider that Global Crossing owes $12.4 billion to its creditors, and "values its assets" at $22.4 billion.
Yet under the deal announced this morning, Hutchison Whampoa and Singapore Technologies would be able to acquire a controlling interest in Global Crossing for $750 million. Maybe I'm missing something, but the math is butt ugly. That $750 million figure works out to 6 percent of what Global Crossing owes its creditors, and a measly 3.3 percent of the "asset value" the company reported to the bankruptcy court.
It's hard to look at those numbers and find a silver lining. I can't imagine Global Crossing's creditors will be very excited - and therein lies the rub. Prepackaged bankruptcies can get in trouble if they are perceived as sweetheart deals. An example is @Home, where the terms of a planned sale to AT&T raised the ire of creditors, who ultimately decided that liquidation was a better outcome. Many customers were stranded, and some are still hopping mad about it.
I'm sure it's an imperfect comparison. But it appears that one of two things must be true: either this is a spectacular deal for Global's suitors, or the current market value of an industry leader's worldwide network is 3 cents on the dollar.
Perhaps Global Crossing's management is hoping a stronger bid will emerge. Exodus' management expressed similar hopes when it struck a Chapter 11 deal with Cable & Wireless. Those sweeter bids never materialized.
Posted by RichM at January 28, 2002 04:15 PMHas the 1996 Telecommunications Act even remotely lived up to it's promise? With the implosion of the telecom sector, where does that leave Joe Consumer? It seems at the moment that a number of very smart people have been fooled into believing the RBOC's would play fair given the chance to compete for local and long distance service. What next de-regulation of the water supply!
Posted by: David Wallace at February 4, 2002 10:23 AMThe telecom industry has now experienced a full blown case of Karma: what goes around comes around. When MCI began the campaign of driving down voice rates years ago, little did anyone suspect what effect those practices would have on all aspects of the telecom sector today such as IP, data, voice, enhanced services, hosting, etc. By setting the precedent for 'whoring' out services to customers, and worrying about what Wall St. thinks, we are now in the situation today - diluted earnings (Level3), questionable accounting methods (Lucent), poor leadership (ATT, Worldcom), massive layoffs (Motorola, 3Com), asset garage sales (Exodus), and little to no future planning. You can't make any sense of the madness by trying to rationalize it with traditonal economic theory. The telecom industry has no ties to Keynesian economics: it's a freakin' flea market mentality that runs the industry whereby loyal employees, customers, and investors have gotten screwed for it.
Posted by: Flappy at February 4, 2002 04:06 PMJust as in the 50's a new gas station surfaced on each corner. Obviously most did not make it. The Telecom Industry loaded with copycats set loose a bunch of ex ATTers and MCIers; most of which were 2 notches short of snake oil peddlers fooled the world. Which if any of the top level people at any of these firms actually have any P&L experience? What innovation or service advantage has appeared? I find none. Their time has come; party is over.
Posted by: RogerS at February 4, 2002 05:58 PM