NEW INVESTORS GET STEAL OF A DEAL

Hutchison Telecommunications and Singapore Technologies Telemedia picked up what could turn into the bargain of the century when the two companies agreed to acquire 61.5% of Global Crossing for $250 million. To those on the inside, though, the deal was indicative of the paralysis afflicting the largest industry players and represented the best option to keep the company intact.

Contrary to most media reports — and despite six delays in the process — negotiations over Global Crossing's future attracted more than passing interest, said company CEO John Legere. Though not willing to discuss details about the auction, Legere confirmed that:

• When the auction opened, the company had 60 potential bidders sign non-disclosure agreements.

• On July 11, when bids were due, 15 bids were placed ranging from basic letters of interest to full-scale proposals.

• Among the most serious proposals were two from companies that submitted their bids after the 11th.

“This process was up and down like you can't believe,” Legere said in an interview last week. “Up to July 11, there were a lot of big players moving around. Any day of the week, there were two or three companies negotiating.”

The resulting deal will give creditors and banks, which were owed $12.4 billion when Global Crossing filed for Chapter 11 in January, $300 million in cash, $200 million in new senior notes and a 38.5% equity stake in the newly formed Global Crossing. “That liquidity plus the [Hutchison and STT] names allow us to go out to all of our customers,” Legere said. “There's no question now: We're not going away.”

The cash outlay is a far cry from the $750 million that the same two companies offered earlier this year for a majority of Global Crossing, which listed $22.4 billion in assets when it filed for bankruptcy. Creditors eventually rejected the bid after determining that the company was undervalued.

With the benefit of hindsight, most analysts now say that creditors were foolish to reject the original bid. However, few could have projected in January the devastation that the telecom industry would suffer over the ensuing months.

“WorldCom blew the whole thing apart,” said Kate Gerwig, principal analyst of network services for Current Analysis. “Hutchison and Singapore Technologies could have paid just about anything they wanted.”

Indeed, Legere said a number of potential bidders were forced to sit on the sidelines partly because creditors were concerned about the amount of cash they could bring to the table.

“[The negotiation] was in the middle of a period of telecom that none us will ever see again,” he said. “It was in the middle of far-reaching investigations. And it was in a period where the big logical players were frozen.”

One of those reportedly bidding on part of Global Crossing was Level 3 Communications. Level 3 CEO James Crowe said the carrier wasn't looking to acquire more network assets but wanted a company with cash flow and customers. Global Crossing offered both, but its network assets had declined significantly in value. “It's really a supply and demand equation,” said John Gonsalves, vice president of Adventis “There's so much capacity out there. Any domestic carrier could just lease whatever they needed.”

Legere said a number of prominent companies were involved in the bidding process but intentionally stayed out of the spotlight. “At any point in the negotiation, unless an offer is made with what we have now, which is a 100-page definitive agreement, it's something in the middle,” he said.

Under Global Crossing's new plan, the company will emerge from bankruptcy sometime in early 2003 (see timeline), though most of the details have yet to be sorted out.

A spokeswoman for Hong Kong-based Hutchison said it was too early in the process to comment on how the three companies may work together. Also unresolved is the future of Asia Global Crossing, which is 59% owned by Global Crossing and is trying to raise cash through an equity issuance. The multiple investigations into the company also will continue, and both new investors must get regulatory approval before Global Crossing can emerge from Chapter 11.

As part of the Hutchison and STT investment, Global Crossing will retain its U.K. operations, its conferencing division and its Global Marine unit. All three had previously been on the block as the company tried to raise cash.

The ability to keep the company whole played a significant factor in the auction process, Legere said. A company-sponsored plan, floated after Hutchison and STT pulled their original bids in May, ultimately was also yanked from consideration because of the message it would send to customers.

“Even though we could emerge as a stand-alone, a strategic investor who could put our liquidity situation beyond question would create a strong statement to our customers,” Legere said. “If we came out on our own it would have taken six to eight quarters before people would be comfortable that we could survive.”

Even with the new, cleaner balance sheet, instilling confidence in the carrier and large enterprises that are the foundation of Global Crossing's strategy will be difficult, though not impossible, said Current Analysis' Gerwig.

“With their name in the headlines every day, and all of it being bad news, a lot of people thought they were gone already,” she said. “They really could come out of this, though, as one of the only really big global players.”

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With additional reporting by Kevin Fitchard in Chicago.

WHAT'S NEXT FOR GLOBAL CROSSING

SEPT. 16

Reorganization plan to be filed with U.S. Bankruptcy Court for Southern District of New York

OCT. 21

Approval of reorganization plan

OCT. 22-DEC. 5

Plan solicitation period

DEC. 5

Plan confirmation hearing in bankruptcy court

JAN. 6, 2003

Confirmation order entered with bankruptcy court

JAN. 21

Effective date of reorganization plan

APRIL 30

Latest date for reorganization plan to take effect

Source: Global Crossing