Global Crossing: An Undersea Creature With A Big Appetite
It was hardly the four-star fare over which high-powered execs usually celebrate deals. To mark the successful negotiation of an $11.2 billion deal to buy Frontier Corp. in March, the top executives of Global Crossing Ltd. repaired to Gray's Papaya at West 72nd Street and Broadway in Manhattan for a quick hot dog. "Why go to Le Cirque when it's just three guys?" quips Global Crossing Chairman Gary Winnick.
Especially when there are so many more deals to chase. Just two years after Winnick and a small group of fellow investors created Global Crossing, the Bermuda-based undersea cable company is striking deals at a breakneck pace. Its $35.5 billion agreement on May 16 to merge with Baby Bell US West Inc. is its third in as many months. If regulators approve, it would give Global the local, long-distance, and international phone lines to make it a giant.
Global Crossing's supercharged growth is testimony to the power of a lofty stock price. With scarcely 200 employees and first-quarter losses of $14.9 million on $173 million in revenues, Global Crossing's market value is $25 billion. But Global has the most up-to-date undersea fiber-optic cables. And it is aiming to build a network that will stretch more than 70,000 miles to reach more than 80% of the world's markets.
Winnick & Co., moreover, are hardly through shopping. "This isn't the end for us at all," says Robert Annunziata, Global Crossing's chief executive. Industry sources say Global Crossing is looking at several regional telecom companies in Europe, possibly including London's COLT Telecom.
It's a far cry from Global Crossing's beginnings. In 1997, Winnick, a former Drexel Burnham Lambert bond salesman, found $750 million to lay a fiber-optic cable that would carry some existing transatlantic traffic. By late that year, Global had commitments for use of 40% of its first line. So Winnick went to the bond markets for $800 million to lay three more. That summer, Global Crossing sold about 10% of the company to the public for $399 million, and its market value soon reached $5.2 billion. That gave the young company the wherewithal to aim higher--to grow into a major telecom supplier by selling services such as high-speed data transmission.
That's where US West came in. The smallest Baby Bell had been eager to do a deal to move beyond local service in a sparsely populated region. Indeed, industry sources say Qwest Communications International Inc., a U.S. fiber-network upstart backed by Denver billionaire Philip F. Anschutz, had approached US West three times about a merger or joint venture.
FCC FIGHT. But US West CEO Solomon D. Trujillo worried that Anschutz might turn around and sell a fattened Qwest, an industry source says. So he approached Winnick. On Saturday, May 8, says Winnick, the two "compared our views of where the world was going." A week later, both sides were holed up at Global Crossing's law firm, Skadden Arps, in New York. "Their vision of the world is similar to ours," says Trujillo, who along with Annunziata will be co-CEOs. Global is expected to allow Frontier and US West to maintain their brand identities, but the three companies will have guaranteed access to one another's markets.
The deal leaves Global Crossing with plenty of challenges. For starters, the company will compete with long-distance carriers to whom it sells capacity on its undersea cables. In fact, it is lobbying the Federal Communications Commission to stop 33 telecom companies--including some Global Crossing customers--from laying an undersea cable to Japan. Moreover, AT&T is likely to push the FCC to make US West open its markets to local-phone competition. "The issue is not mergers, it's monopolies," says James Cicconi, AT&T's general counsel.
Then there's the matter of merging US West and Global Crossing. For now, the company will operate with two CEOs, a pairing that hasn't often worked in the past. Winnick will step aside once the deal is done and vote his 9% stake in the combined company from a seat on the board. "I'm an owner, I don't have to be CEO," says Winnick. And he's still a dealmaker, who can be found whooping it up at Gray's Papaya.
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