GBLX may buy RSLC
Telecom: Global Crossing: One Deal Done, But Still Needs
Customers
by Len Hollie (7/21/99)
The one that got away is a lot bigger than the keeper that they must now begin to
digest.
For Global Crossing (NASDAQ:GBLX - news) , the telecom upstart, completing its
merger with Frontier Corp. (NYSE:FRO - news) will likely be a priority. But there is
still that pesky need for customers, both in the U.S. and abroad.
'They'll get the deal done first, then these guys will have to hit the road and show that they can block and tackle, like
Qwest, and begin to get their stock price up,' says Aaron Dean, a special situations analyst at Prudential Securities Inc.
'The iterations of companies that they can buy or partner with are endless, but they are going to be very sensitive about
the dilution of their stock,' says Dean.
On Sunday, Global Crossing reaffirmed its definitive $63 per share, $11 billion merger with local and long-distance phone
company Frontier after Qwest (NASDAQ:QWST - news) withdrew a competing $12 billion bid. The Global
Crossing-Frontier deal is due to close in the third quarter. Qwest previously offered a counter bid for both Frontier and
US West Inc. (NYSE:USW - news) , but the companies settled the bidding with Qwest acquiring US West. Global
Crossing stock slid $3.13 or 6.74% to $43.25 today, well off the 52-week high of $64.25. Frontier's stock tumbled
$1.94 or 3.4% to $55.00.
However, partnering with Frontier will not bring the kind of access to customers that an RBOC (Regional Bell Operating
Company) would have given them, analysts say.
'They will likely look at whatever opportunities come their way, but it's not so easy to see where they could buy
something,' says Peter Treadway, analyst at Southeast Research Group. On Monday, he reiterated his 'buy' rating on
Global Crossing and has a price target of $76. 'Global Crossing wants to expand its CLEC access, and they want
broadband access. They may have to assemble some smaller companies, but there are no more RBOCs available,' says
Treadway.
Analysts note that Global Crossing would be looking to expand its customer base in both the U.S. and Europe. 'Global
Crossing is already building a pan-Europe network, in fact, they say it's 25% complete,' says Treadway. 'So they don't
need another network in Europe, they need access to customers.' According to Treadway, some of the companies that
could be acquisitions or possible partners are:
RSL Communications, Ltd. (NASDAQ:RSLC - news) a multinational telecom with operations in 20 countries on four
continents that account for more than 70 percent of the world's telecommunications traffic. RSL provides an array of
telecommunications applications, such as fixed and wireless, calling card, fax, data, Internet, and private line services. The
company has an emphasis on international long distance voice services, and its target customers are primarily small and
medium-sized businesses in key markets.
COLT (NASDAQ:COLT - news) , one of Europe's new competitive telecoms that operates an integrated IP (Internet
Protocol)-based network that links financial and business centers in nine European countries and 18 cities. It's currently
working to interlink its city-based operations to create a pan-European network.
Primus Telecommunications Group, Inc. (NASDAQ:PRTL - news) offers domestic and international long-distance
voice, data, Internet, private network services over owned and leased transmission facilities. It has ownership interests in
a number of undersea fiber optic cable systems, international gateway and domestic switches. The company also has a
satellite earth station and a variety of operating relationships that allow it to deliver traffic worldwide. The company
recently partnered with Cisco Systems, Inc. (NASDAQ:CSCO - news) to offer enhanced IP and data services to
customers worldwide.
'What could really help them in Europe would be a privatized monopoly, such as France Telecom, or any of the
telephone companies in Europe, except maybe Deutsche Telecom, which they probably couldn't buy,' says Treadway.
But it's certainly not clear that any of those are for sale. When you get away from the big European monopolies, it's not
clear where the opportunities would be, except in some of the smaller names,' he says.
Domestically, Global Crossing could move on any of the CLECs (Competitive Local Exchange Carrier), but Treadway
notes that a lot of those are just starting up, and many of those are resellers of telephone services, which is what Frontier
already brings to the table.
'The one name that comes to mind is Winstar (NASDAQ:WCII - news) , which appears to be the only big CLEC that is
available right now. But there may be a lot to do on the regulatory front to acquire them,' says Treadway.
Bottom Line:
Look for the deal making to continue at Global Crossing. The company's broad and deep management team plans to build a telecom powerhouse in the quarters to come. |
