OT:Executives Say Cost-Cutting Plan Will Help Global Crossing Survive
By DENNIS K. BERMAN and HENNY SENDER
Staff Reporters of THE WALL STREET JOURNAL
Global Crossing Ltd. executives, trying to stave off asset liquidation, said a new cost-cutting plan will enable the telecommunications firm to stay alive as a stand-alone concern. But the officers wouldn't predict if the company, in the midst of an increasingly contentious bankruptcy proceeding, would ever turn a profit.
The Bermuda-based company's strategy was received with only muted praise from creditors, who are owed more than $12 billion. The spending cuts unveiled Friday will likely give the company breathing room to find a buyer, according to people close to some of the company's creditors, but did little to squash the possibility that creditors could press for liquidation.
Chief Executive John Legere, speaking during a three-hour interview Saturday, did his best to discount that possibility, saying the company had already attracted interest from numerous investors, who have until April 23 to submit bids.
He also said the plan made the company less reliant on debtor-in-possession financing or a $750 million preliminary bid from Asian technology firms Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte. to purchase a 79% stake. Under the Asian firms' bid, creditors would receive $300 million in cash and new equity in the reorganized company.
The plan comes at a time when many creditors are openly skeptical about the attractions of the bid from Hutchison and Singapore Technologies. In talks with those two companies over the terms of the bid, creditors have expressed vehement opposition to a $40 million breakup fee Global Crossing has pledged to the companies. The deadline for bids is subject to change.
The planned cut in spending is meant to convince creditors that the company can survive on a stand-alone basis. "By ratcheting down their operations and preserving cash, they have much less need for that offer" from Hutchison and Singapore Technologies, said a person close to the company's talks with creditors. But Mr. Legere also has to convince vendors to keep supplying goods and services while asking them to ease payment terms. If he doesn't succeed, the vendors could force the small number of Global Crossing units, mostly foreign, that haven't filed for bankruptcy-court protection to seek that shield.
The company, which expects to close 71 offices, now plans to spend $900 million in 2002, compared with operational expenses of $2.6 billion in 2001. It plans to shrink its work force to 4,800 employees, from 8,500 at the end of 2001. It will put its conferencing unit and United Kingdom-based network up for sale and will forfeit its budget for corporate airplanes for a savings of $8.5 million a year, according to court filings. Mr. Legere said he will cut his salary by 30%, to $770,000 annually.
Capital expenditures, which have been historically high as the company built its 27-country telecom network, are slated to shrink to $200 million in 2002 from about $3.2 billion in 2001. The company said it has about $1 billion in cash.
"It's too soon to say we're not going to need outside investment -- but whatever we might need is a lot less than we needed before," said Mr. Legere, who in October became the fifth chief executive at the company, which was founded by financier Gary Winnick in 1997. Mr. Legere said the overall meltdown in telecommunications was responsible for 90% to 95% of the challenges facing Global Crossing, which once boasted a market capitalization greater than General Motors Corp. As for the remainder, Mr. Legere said: "This is a company that grew extremely fast, and didn't have time to slow down and contain itself."
The austerity plan alone won't solve the company's problems. A glut of telecom capacity has sent prices down an average of 50% every six months, according to industry analysts. And the company has to fight to keep skittish customers. In recent days, Mr. Legere has made 20 calls a day to smooth over customer worries, he said.
Negative publicity doesn't help, either. "We probably have negative brand," Mr. Legere said.
Most of the public attention has been tied to Securities and Exchange Commission and Federal Bureau of Investigation probes into the company's accounting. Global Crossing came under scrutiny after disclosures that a former finance executive accused the company of inflating revenue by using so-called swaps of capacity with other telecom carriers.
In recent days, documents and computer hard drives have been carted away from company offices for the use of external and internal investigative teams, according to Global Crossing employees. Mr. Legere said he supports "what the SEC is trying to do" and added that any wrongdoing would be swiftly punished. Meanwhile, the creditors' committee has hired Deloitte & Touche LLP to look into the company's accounting and expects to receive the firm's findings in three or four weeks.
In an interview, Chief Financial Officer Daniel Cohrs offered an explanation for the transactions in question. Mr. Cohrs said that during 2001, the company was still planning for a rapid expansion into new markets, which required it to buy capacity from other players. If many of the assets the company purchased via "swaps" weren't used it was only because the level-of-demand forecast changed dramatically, he said.
In addition, Mr. Cohrs said the "post-Enron" environment figured greatly into the public perception of Global Crossing's accounting practices. Like Enron, Global Crossing has used Arthur Andersen LLP as its auditor, and matched employees' 401(k) savings contributions with company stock. "A lot of people are looking for parallels that sound interesting and spectacular," Mr. Cohrs said. "It affects how everyone talks about Global Crossing."
Mr. Legere said he never expected to take the company into bankruptcy when he first assumed the CEO post. In the months leading up to the filing, he reasoned that the company "would find a way to beat the buzzer."
The company faces a new deadline in April 23. That's the date by which competing bidders must file their finals proposals with the bankruptcy court.
Mr. Legere notes that traditional carriers would be interested in his network, adding that "Deutsche Telekom has always been interested in our health; we are part of their supply chain." But conceding that the downturn has left many carriers ailing, he suggested it may be more practical for a financial firm, such as a private equity firm, to acquire Global Crossing and try to "pass it on later." |
