Global Garage Sale Coming?

Bankrupt telecom giant Global Crossing Holdings Ltd. announced today that it is developing its own restructuring plan as an alternative to the bids it expects will come in over the next couple of weeks (see GlobalX Touts Own Plan).

The announcement came after this weekend's collapse of the Hutchison Whampoa Ltd./Singapore Technologies Telemedia Pte. Ltd. (STT) deal to purchase Global Crossing, which many observers say was the company's only chance at being sold off in one piece and not chopped up and auctioned off (see GlobalX Talks Fall Through).

With no formal bids on the table and such a short time left to try to entice buyers to step up to the plate, Global Crossing creditors risk that the final bid will be worth far less that the one they just turned down, analysts say. While Global Crossing's announcement today may have eased some creditor fears, most observers say they still expect the July 8 auction to turn into a garage sale of the carrier's assets, with creditors getting pennies on the dollar.

Sean Doherty, a managing partner of Venture Asset Group, says that especially in bankrupty cases where there is a lot of debt involved, bankruptcy courts are going to favor bidders offering cash, even if the cash is far less than what the business is worth. "The clock is ticking," he says. "People are going to start making $50 million to $100 million bids, and the judge is going to say OK."

The idea that Global Crossing will be able to pull off its company-sponsored restructuring is far-fetched, says Doherty. "These people are still having the same stupid dreams they had before. They're thinking: 'We'll keep this thing together. It's still worth [$22.4 billion].' That's just moronic."

Others concur that a garage-sale stlye liquidation of Global's assests is likely to be the ultimate resolution.

"Ideally, the company would want to go on operating as is," says Current Analysis analyst Jason Knowles. "But I don't think that will happen… My thought is that the company will be sold off in pieces."

Global Crossing and the Global Crossing Creditor's Committee, however, claim that the new company-sponsored restructuring plan positions it better than ever to emerge with its core global network intact.

In today's announcement, the Bermuda-based carrier said that it believes its cash-cutting efforts -- including massive layoffs and the expected closing of 217 offices before year-end -- asset-sales, and anticipated equity investments will facilitate its restructuring efforts and allow it to continue operating as one company.

In a separate announcement today, the company's Creditor's Committee claims the end of what it refers to as "stalking horse negotiations" with Hutchison and STT reflects an improvement in the company's chances to successfully reorganize and opens the way for a viable standalone restructuring option.

Hutchison and STT put in a bid to buy the telecom company about four months ago, after it filed for chapter 11 on January 28 (see GlobalX: The Burst Bubble). Approximately 60 companies have voiced their interest in buying parts or all of Global Crossing, but the Hutchison-STT bid was the only formal one the company had received. The two companies offered to pay $750 million -- only a fraction of the estimated $22.4 billion price tag on the company's assets -- for a 79 percent stake in the company.

Global Crossing's creditors, however, balked -- not only at what many characterized as a fire-sale price, but also because the two potential buyers insisted that the creditors write off the company's entire $12.4 billion debt. On Saturday, the Asian duo announced that, despite an extension of the May 21 deadline to reach an agreement with Global Crossing, they had ended the discussions with the carrier's creditors because of continuing "major differences."

Hutchison and STT have not ruled out joining in future negotiations for Global Crossing, saying they would keep their options open. Few observers, however, anticipate seeing the companies among the bidders expected to step up to the plate before the June 20 deadline. If there are multiple bids, an auction will be held on July 8, and the bankruptcy court is set to approave the winning bid on July 11.

Rich Nespola, president and CEO of consultancy and management firm The Management Network Group Inc. (TMNG), however, says that Global Crossing's management did the right thing to initiate a plan that could help the company avoid liquidation. "Let's put it this way," he says, "you can't have no plan. There is some hope that they can rehabilitate the company."

— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com