Firms Fight Over C&W's US Assets

A bitter battle has broken out between rival bidders for the U.S. assets of Cable & Wireless plc (NYSE: CWP).

A relatively straightforward deal looked to be in the cards when Gores Technology Group LLC stepped forward to buy C&W's hosting and IP solutions businesses for $125 million (see C&W Sells US Albatross). But as confidence returns to the technology sector, the assets, now under bankruptcy protection, have attracted at least one other bidder to a coming auction by the bankruptcy court (see XO Bids for C&W America). And with that bid has come a war of words.

XO Communications Inc. has teamed up with One Equity Partners, the private equity business of Bank One Corp., to challenge Gores for the assets.

And XO may not be alone. Various media reports suggest close scrutiny from other parties, including Level 3 Communications Inc. (Nasdaq: LVLT), Qwest Communications International Inc. (NYSE: Q), WilTel Communications Group Inc. (OTC:WTELV.PK), Cerberus Capital Management LP (no Website found), and Oaktree Capital Management.

But XO went further than simply submitting a rival bid. It has requested that Gores be disqualified by the bankruptcy court from the auction process, claiming that Gores poached an XO executive in a deliberate effort to gain information about XO's interest.

Gores reacted to the claims publicly, declarng that XO chairman Carl Icahn's actions "are nothing more than a thinly-veiled attempt to disrupt the bidding process" (see Gores Wages War of Words With XO). Icahn has a track record of making late bids for distressed telecom businesses (see Court Chills Icahn's Global X Bid).

To further complicate matters, Qwest has requested that the auction, due to take place this week, be delayed while it seeks further information about the hosting and IP solution businesses.

The scramble for C&W's U.S. business comes as no surprise, as the $125 million bid by Gores has been generally regarded as a low valuation. And market analysts are predicting growth for the hosting sector. Forrester Research Inc. believes the market for high-end, managed hosting services will increase from about $6 billion in 2002 to more than $30 billion in 2006, while IDC predicts the U.S. Web hosting sector will experience compound annual growth of more than 10 percent between 2002 and 2007.

— Ray Le Maistre, International Editor, Boardwatch