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Global Crossing: More M&A to Come?

Global Crossing (Nasdaq: GLBC) recently closed its acquisition of Latin American telecommunications service provider Impsat Fiber Networks Inc. and the carrier says it's not quite done adding to its arsenal.

Chief Marketing Officer Gary Breauninger told Light Reading that the company still could be a player for further acquisitions in the future. "We're still not totally built out in Asia as our Asian subsidiaries were purchased during bankruptcy."

In addition to Asia, Breauninger says the company still has some scalability issues in Europe, and it could look to make moves there as well. While consolidation in the industry has been happening quickly in North America, Breauninger says those opportunities are just beginning elsewhere. "I don't think global consolidation has started yet."

Global Crossing is not in the best financial situation to pull off these deals so it has secured a $250 million five year term loan from Goldman Sachs & Co. and Credit Suisse to better position itself.

Meanwhile, with the addition of Impsat, Global Crossing looks to further strengthen its reach in the Latin American region. Impsat will bring a mostly fiber network spanning 10,000 kilometers in eight countries and data centers in 15 cities to the company's portfolio.

The final price tag for Impsat was $347 million which included $95 million worth of equity, or $9.32 a share. According to Impsat's most recent annual report, as of March 15, 2007, the equity was held largely by institutional investors which included Nortel Networks Ltd. with a 21 percent stake, or 2,755,108 shares.

Nortel would not offer any comment as to how much its stake was worth at the time of the deal's closing or how much of a profit it turned from it, but the company's take could have been as high as $25 million.

In recent quarters, Global Crossing had appeared to be turning things around financially. It achieved two milestones in 2006 -- positive EBITDA (earnings before interest, taxes, depreciation, amortization) in the third and fourth quarter and positive cash flow in the fourth quarter. (See Global Crossing Reports 2006.) This was the first time in its 10 year history that the company had done so in any quarter. Investors were pleased and the stock hit its 52 week high of $30.85.

But disappointing first quarter 2007 earnings have sent the stock tumbling 36 percent since May 9 and the company is once again in the red in terms of EBITDA. So what went wrong?

The company has cited one time out of period charges such as universal service charges as a main reason for a decline at the bottom line. "When your balance sheet is so close to zero, these small items here and there really affect the bottom line and we ended up off by a couple of million," said Breauninger.

But with still encouraging growth numbers in its business, including recent 270 percent growth in VOIP traffic and 143 percent growth in managed IP VPN service traffic, Global Crossing certainly believes that it is heading in the right direction. It has set aggressive guidance goals for the remainder of the year including EBITDA of $165 to $195 million. (It has already lost $8 million this year.)

The Impsat acquisition should help in reaching those goals as that company achieved positive EBITDA of $19 million last year. "I think you're going to start to see some of the volatility go away," says Breauninger.

— Raymond McConville, Reporter, Light Reading

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