This is an interesting article (i bolded a piece)
Global Crossing: Coming Soon To Financial Desktops Everywhere
Tue Feb 29 00:21:00 EST 2000
Feb. 28, 2000 (Fiber Optics News, Vol. 20, No. 9 via COMTEX) -- Global Crossing
Ltd. [GBLX] is getting antsy -- and getting out its checkbook. Looking to expand
its strategy of providing building-to-building connectivity in major cities, it
made a move Feb. 22 to provide desktop-to- desktop connectivity for
multinational corporations worldwide.
The means to that end came via acquisition of IXnet Inc. [EXNT], a provider of
specialized IP-based network services to the global financial services
community, and its parent company, IPC Communications Inc. [AMEX: IPI] for $3.8
billion.
Founded in 1995, 330-employee IXnet provides desktop-to-desktop broadband data
and voice services to more than 600 financial institutions worldwide, including
investment and commercial banks, asset managers, broker/dealers, and trading
firms.
"This is a natural next step for us," says Dan Cohrs, Global Crossing CFO.
"Having built our network, the next step in our strategy is not to just sell
capacity to carriers, it's to get the end-user customers. This financial
institutions market is the single most important market for international
telecom. It's a $30 billion market. This acquisition puts us right into that
market."
IXnet also hosts and distributes market data, news, streaming video, research
and analytics for more than 30 content providers to the global financial
community. IXnet has points of presence in 37 countries with 1,450 customer
access nodes (intelligent network gateways).
IPC Communications, which has about 1,000 employees, owns approximately 73
percent of IXnet's fully diluted shares. IPC provides desktop trading systems to
the global financial community and penetrates an estimated 70 percent of the
U.S. market and 60 percent worldwide.
It's a nice pickup for Global Crossing, but did the Bermuda behemoth pay too
much?
"I think the price paid is high and that's got the market a little
nervous," says Tom Burnett, analyst with New York-based Merger Insight. "IXnet
only has annual revenues in the range of $100 million, so you're paying over 25
times revenue here."
But Cohrs is used to such criticisms. "If I go back to our Frontier acquisition
[March 17, 1999 for $11.2 billion], a lot of people said 'I don't know why they
paid so much for that one,' " Cohrs says. "Let's look at it. We will probably do
an IPO of Global Center, Frontier's Web-hosting business. Now I don't want to
speculate about value precisely, but every investment banker we have interviewed
for that assignment said that the IPO value of Global Center will be as high or
higher than the entire price we paid for Frontier."
IXnet lost $59.5 million in 1999 on revenues of $73.6 million, but since when
did making money become a prerequisite for huge stock gains? The company had one
of the more lukewarm IPOs in recent memory, opening Aug. 12 at $14.75 and
closing that day at $15. IXnet's stock has increased steadily since then,
closing Feb. 22 up $2.50 at a record high of $55 on volume of 2.9 million.
IXnet's slow climb uphill was due to investors getting comfortable with its
strategy and its ability to execute, says Mark Kastan, analyst for Credit Suisse
First Boston. Global Crossing shouldn't be concerned about IXnet's lack of
profitability.
"The key issue in this deal was driving the top line, driving revenue, and
expanding geographically and expanding their service offering," says Kastan, who
rated IXnet a "buy."
Faster Than A Speeding Bullet
Cohrs, who in previous jobs was in charge of mergers and acquisitions at GTE
Corp. [GTE] and Marriott [MAR], says no one can open and close a deal as fast as
Global Crossing.
"We moved pretty fast at GTE and Marriott too," Cohrs says. "But I've never seen
a company anywhere that can make decisions and execute as quickly as we can.
Cohrs says Global Crossing looks at about 20 deals for every acquisition it
makes, but gets through the process with lightning quick efficiency. And speed
is essential in an industry where there's two kinds of people -- the quick and
the dead.
"The telecom business is like the gold rush," Cohrs says. "If you don't get
there first, somebody else gets the gold. It's the biggest industry in the
world, and it's probably undergoing the most incredible transformation of any
industry in the world. We have to move fast or we won't be a player."
Bullish On Bandwidth
Global Crossing's strength is in its bandwidth, a category that Cohrs says can't
be matched by its main competitor, MCI WorldCom [WCOM].
"What our network offers is more bandwidth to more places than any other network
in the world," Cohrs says. "We have more bandwidth than MCI WorldCom. They have
a very, very extensive network, but nobody has as much bandwidth going to as
many places as we do."
That may or may not be true, says MCI WorldCom spokeswoman Linda Laughlin. She
says MCI WorldCom doesn't calculate who has more bandwidth, nor does it
particularly care.
"We want to follow our network deployment plans and give customers more
bandwidth as needed," Laughlin says.
And that's key in an industry that is completely and utterly driven by bandwidth
demands, as Cohrs illustrates.
"Every single forecast and study we've seen for the demand of bandwidth has been
too low," Cohrs says "When our Atlantic cable was first financed, going back two
years, the banks had a consultant do a study which projected that by the end of
1998 we would have contracted for about $75 million of sales on the cable. The
cable went into service in May, 1998. By the end of 1998, we had over $1 billion
in sales."
That means customers buy bandwidth at lower prices, due to volume discounts.
"The cost of providing a circuit for us is dropping exponentially because of
technology," Cohrs says. "Now retail prices come down more slowly than cost, but
when the price declines are significant, that drives customers to say 'Hey I can
afford this stuff. I don't need to buy more equipment optimizing my network;
I'll just buy more bandwidth.' " |
