C&W signs conditional contract to acquire Exodus

Cable & Wireless has reached a conditional agreement to purchase a majority of the assets of bankrupt Web-hosting firm Exodus Communications.

Valued at $850 million, the deal includes 26 of Exodus’ 44 operational data centers plus four other fully outfitted centers. Of these 30, 26 are in the U.S., two are in London and there is one each in Frankfurt and Tokyo.

To bring the acquisition to cash flow break-even, C&W plans to invest an extra $250 million into Exodus. Including synergies, the assets are expected to go EBITDA positive in calendar year 2003 and profitable in the fiscal year ending March 2005.

One of the most important synergies for C&W is increased traffic on its U.S. network from Exodus-hosted Web sites. In addition, C&W plans to cross-sell its IP solutions, such as Web infrastructure services and content delivery, to Exodus’ customers. A C&W spokesman said that the company was getting a “large proportion,” of Exodus’ customer base, citing it as one of the main assets in the deal. He declined to give any further details.

This is the second acquisition C&W has made in the U.S. Web-hosting space this year. In August, the company closed on its purchase of Digital Island, a provider of managed Web hosting, content delivery and intelligent network services. By buying the Exodus assets, C&W hopes to build on the Digital Island deal.

“The simple answer is the point of scale,” said a C&W spokesman. “The combined Digital Island and Cable & Wireless hosting capacity was 1 million square meters, and we’re now talking about 4 million.”

Even with C&W’s grand designs for Exodus, the deal is far from closed. According to the spokesman, C&W’s offer goes before a bankruptcy judge in January, when an auction will be opened for Exodus’ assets. If C&W wins the auction, the company expects the deal to close in February.