Wednesday February 14 2:00 PM ET
Analysts Surprised by Exodus' Funding Spree
By Ian Simpson
NEW YORK (Reuters) - Exodus Communications Inc. (NasdaqNM:EXDS - news), the No. 1 manager of company Web sites, likely will use the surprise $741 million it raised last week as a cushion against hard times, analysts said.
They told Reuters they were surprised when Exodus raised $241 million by selling 13 million shares. The rest came from $500 million in convertible bonds, which can be switched into company stock.
The stock sale raised eyebrows since Exodus sold the shares at $18.50, less than $4 above its 12-month low. The stock has slid in recent months with the rest of the Internet sector, dropping from a 12-month high of $89-13/16.
``The stock price took everybody by surprise,'' said Peter Labe, an analyst with Buckingham Research Group. ``They certainly can use the money. Maybe they thought, 'Get it while we can get it.'''
The company's shares were off 19/32 at $16-45/64 in Wednesday afternoon trading on the Nasdaq market.
In announcing on Feb. 6 that it had raised the money, the Santa Clara, Calif.-based company said it would use the funding to expand its business, including buying assets or companies.
Exodus provides storage and maintenance services to such companies as CBS Sports, online auctioneer eBay Inc. (NasdaqNM:EBAY - news) and Microsoft Corp.'s (NasdaqNM:MSFT - news) free e-mail service Hotmail.
An Exodus spokeswoman declined to comment on the stock sale or the convertible bonds.
Michael Turits, an analyst with Prudential Securities, said Exodus had taken advantage of two interest-rate cuts by the Federal Reserve to tap capital markets.
He added that a company target of $300 million to $350 million in operating cash flow this year could be ''challenging.'' The company has been hit by a drop in dot-com business but is seeing growth from corporate customers, which make up the bulk off its sales.
``You'd like to see them have a financial cushion to get through a rocky patch to where that business model is going to pay off,'' Turits said.
He said the funding was in addition to $805 million in cash on Exodus' balance sheet and another $450 million available in debt financing.
That $1.25 billion by itself would carry Exodus to Turits' target of break-even in net income terms in the third quarter of next year, the analyst said.
Analysts said acquisitions could take a back seat to other expansion projects. Exodus is digesting its $6.5 billion stock purchase of a Web hosting unit from data transmission company Global Crossing Ltd. (NYSE:GX - news). That deal closed last month.
Exodus has about 427.8 million shares outstanding after the stock offering. Its senior unsecured debt carries medium junk grades of ``B3'' by Moody's Investor Service and ``B'' from Standard & Poor's. The firms are ratings agencies. |
