Court Chills Icahn's Global X Bid
Global Crossing says it's pleased with a court ruling that extends the terms of an exclusive bid for its assets of by Singapore Technologies Telemedia Pte. Ltd. (STT). The STT purchase is being set up to allow Global Crossing to emerge from bankruptcy proceedings.
The ruling puts a damper, at least temporarily, on at least three alternative bidders and would-be bidders, including those from XO, IDT Corp., and Level 3 Communications Inc. (Nasdaq: LVLT).
After days of deliberation that started last week (see GlobalX Fate Unwinds in Court), the U.S. Bankruptcy Court for the Southern District of New York granted Global Crossing's request to revise its agreement with STT, to deal exclusively with STT until October 28, 2003, and to release a former bidder, Hutchison Whampoa Ltd. (Hong Kong: 0013), from potential liability resulting from sale of its interest to STT (see What's to Become of Global Crossing?).
Global Crossing's requests were opposed by others waiting in the wings to make their moves. XO was the most aggressive. Led by board chairman Carl Icahn, XO last week offered a total of $495 million to purchase Global Crossing's bank debt -- an offer that XO announced had been accepted earlier this week by Global Crossing. The ownership gives XO ownership of about 36 percent of Global Crossing's total senior secured loan debt.
IDT also offered $255 million back in February 2003 for a share of Global Crossing's assets. And earlier this week, it came to light that Level 3 had been interested as well.
In his decision filed today, Judge Robert E. Gerber said he found that the debtors of Global Crossing have exercised good judgement so far in pursuing the STT deal, and that it's not clear to him that more would be gained by allowing XO in at this point.
"If I were to believe, for half a second, that the Debtors had spurned a better offer to the detriment of their fiduciary duties, I would not hesitate to invoke my powers. But there is no basis, on this extensive record, for any such finding," Gerber wrote.
He did leave the door open for XO: "I am not in any way holding that XO is unwelcome as a stakeholder in this case, or as a prospective bidder for the Debtors' assets; this ruling is simply that the Debtors exercised perfectly reasonable business judgment, fully in compliance with the requirements of applicable law, in locking in their deal with STT -- even though continuing with STT is not without risk..."
Global Crossing and STT are pleased with the ruling. "While there are still a number of steps required, we believe we've made a major step forward today in our progress toward emergence from Chapter 11. While we appreciate the interest shown by other companies... we view the Purchase Agreement with ST Telemedia as the most promising vehicle to ensure our successful emergence," said Global Crossing CEO John Legere in a prepared statement.
It's not clear now what will happen to these other parties. XO will remain a stakeholder, but it may not have much control if the STT buy goes through, particularly as STT is expected to be the majority owner, with 61.5 percent of the company.
Still, much remains up in the air. The Global Crossing/STT agreement must still make it through the U.S. Treasury's Committee on Foreign Investments in the United States (CFIUS). The U.S. government's perusal of the deal continues under confidential wraps, but STT's foreign ownership may pose a challenge, some say.
It's not clear what XO's next move will be. Late this afternoon, the company published a release expressing disappointment with the decision and skepticism about Global Crossing's ability to seal the deal, given STT's foreign ownership. "XO will continue to actively monitor both the bankruptcy and regulatory proceedings," the release states (see XO Opines on GX Court Order).
— Mary Jander, Senior Editor, Light Reading