By Steve Rosenbush
Industrial powerhouse Tyco (TYC ) has sold its Global Network, valued during the tech boom at $3.5 billion, for a mere $130 million. The assets were bought by Indian conglomerate Tata Group, which is in the midst of a major global expansion of its VSNL telecom unit. VSNL provides Internet services to businesses.
The difficulty of the auction, which was run by Tyco banker Goldman Sachs GS , reflects ongoing economic difficulty in the long-distance telecom markets. The talks, first reported July 16 by BusinessWeek Online, dragged on months longer than some originally expected (see BW Online, 7/16/04, "An Indian Rescuer for Tyco's Cables?"). Moreover, the price fell well below the $200 million that some industry insiders expected.
Overcapacity and brutal price wars, at their most extreme in the international sectors that Tyco tried to crack, contributed to the bankruptcies of rivals such as Global Crossing (GLBC ) and 360 Networks. Global, which emerged from bankruptcy in 2003, continues to struggle. That same year, Columbia Ventures acquired 360's transatlantic cable, once valued at $770 million, for just $17 million.
Tata is betting that it can build a viable business from the telecom wreckage. It's spending $3 billion on the VSNL overhaul. "The agreement is a major step forward in our ongoing drive to offer our enterprise and carrier customers seamless, end-to-end telecommunications solutions that encircle the globe," N. Srinath, director of operations, said in a statement. Tata says it has established a presence in the U.S., Europe, Singapore, and Sri Lanka.
Represented by banker DSP Merrill Lynch, of Mumbai, Tata originally had several rivals for Tyco's global underseas- and transcontinental-cable network. Indian conglomerate Reliance Infocomm and Phoenix-based Pivotal Private Equity, had expressed interest. But Reliance, which acquired assets of bankrupt Flag telecom last year, didn't appear to need Tyco's cable as much as Tata did. And Pivotal, which owns Internet domain-name pioneer Network Solutions, didn't need the Tyco network for the sort of fundamental strategic reasons that motivated Tata.
Tata is expected to move ahead quickly. Regulatory approval in the U.S., India, and elsewhere is expected within six months, a person familiar with Tata's planning said. No job cuts are expected.
As for Tyco, the deal represents a form of corporate closure. CEO Ed Breen, the Motorola veteran who succeeded embattled former Tyco chief Dennis Kozlowski, has finally extracted the company from one of its most troubled markets. The price won't inspire much envy at cocktail hour, but at least Tyco can move on.
Rosenbush is a senior writer for BusinessWeek Online in New York
Edited by Beth Belton