The problems are getting worse for Global Crossing Ltd., the former telecom highflier now in bankruptcy court. On Jan. 29, a whistleblower letter was made public with accusations that Global had inflated its revenues and profits through swaps of capacity on its fiber-optic network. An investigation by the Securities & Exchange Commission is in full swing.
Now, BusinessWeek has learned, shareholders are accusing founder and Chairman Gary Winnick of trying to sell Global Crossing to two Asian companies on the cheap in a deal that would allow management to keep an ongoing stake in the business. Under the terms of the restructuring plan, set out in a Feb. 7 SEC filing, Hutchison Whampoa Ltd. and Singapore Technologies Telemedia will buy 79% of the company for $750 million. Creditors owed about $12.4 billion would receive $300 million in cash, $800 million in new debt, and shares in the reorganized company.
And while existing shareholders would get zip, management could eventually get a 10% stake. "They will own 10% of a company with a clean balance sheet," complains Jay Province, a Web site designer in Charlottesville, Va., who owns 35,000 shares. "This is abuse of the bankruptcy courts." A spokesman for Winnick says: "It's up to the buyers to determine management's stake." The company de- clined comment.
Winnick, a former Drexel Burnham Lambert Inc. bond salesman, has sold $734 million worth of Global Crossing stock since the company went public four years ago. According to one former Global Crossing executive, two directors, Gannett Co. Chairman and CEO Douglas H. McCorkindale and Scientific-Atlanta Inc. Chairman and CEO James F. McDonald, said they left the company's board last year after they grew concerned about the high compensation packages of Winnick and other senior executives. McCorkindale and McDonald, who made up two of the three members of Global's compensation committee at the time, declined to comment. Winnick's spokesman says: "The two cited time pressure as the reason for their departures."
With unhappiness over Winnick's restructuring plan growing, a shareholder group plans to make a counterbid through a "rights" offering, which would allow existing investors to keep their stakes by putting more money into the company. The offer would also provide for a higher price than that of the current reorganization plan, say sources close to the deal.
The company says it will consider any offers. "Any final agreement would take place after additional negotiations and after approval by the court and all appropriate regulatory bodies," says company spokesman Daniel Coulter.
According to Chanin Capital Partners, which represents Global Crossing bondholders, the current offer values Global Crossing at just 11% of its property, plant, and equipment. Other companies, such as Level 3 Communications and Williams Communications Group, trade for between 30% and 50%. That implies a valuation as high as $5 billion for Global Crossing, about five times more than the current offer.
Given that yawn- ing gap, the fight for control of what's left of Global Crossing is just heating up.
By Christopher Palmeri in Los Angeles and Peter Elstrom in New York