Viatel Grabs $60M, Aims to Cut Bull

Nineteen ninety-nine, it ain't, but there's definitely something in the air. While Juniper Networks Inc. (Nasdaq: JNPR) was busy making multibillion-dollar M&A hay with its stock yesterday (see Juniper Buys NetScreen), pan-European operator Viatel Holding (Bermuda) Ltd. (OTC: VTLAF) was lining up $60 million in new funding (see Viatel Targets $60M Funding).

And yes, that is the same Viatel that collapsed under the weight of its $2.1 billion debt in 2001. It has since engineered a debt-for-equity swap, appointed a new management team, and even made a few small acquisitions (see Woods Takes Helm at Viatel). It operates a 7,200-kilometer backbone network that covers six European countries, including the U.K., France, and Germany, and claims to have 10,000 business customers.

It sems to be a trend -- now that the capital markets have thawed, carriers are out raising funds again. As Viatel's principal owner Morgan Stanley is helping it to raise the new funds, Global Crossing (Nasdaq: GLBC) is contemplating ways to raise additional dough to get it through the rest of the year.

A Global Crossing spokesman says the carrier emerged from Chapter 11 last December with cash and cash equivalents of $367 million, plus the $250 million cash injection from new majority owner Singapore Technologies Telemedia Pte. Ltd. (STT) (see Global Crossing Emerges From Chap 11). But Global Crossing reckons it will need an extra $100 million funding to see it through to the end of 2004.

And what will Viatel do with its new money? It's planning an all-out assault on the tough-to-crack medium-sized (100 to 1,000 employees) enterprise market, just like MCI (Nasdaq: WCOEQ, MCWEQ) (see MCI Europe's Slippery Strategy), but unlike Global Crossing (see Euro GlobalX Boss: No Price War).

The rewards appear attractive for any company that finds the right approach: Viatel commissioned some specific market research from Analysys, which figures this market could be worth £23.5 billion ($44 billion) by the middle of 2005.

Viatel's new brand positioning has a unique angle to tackle this market: It's using a "No Bull" ad campaign, which was developed as a result of talking to businesses across Europe. One campaign shows a picture of a bull with the headline copy "no/jargon@viatel." Geddit?

So does Viatel have a fighting chance of success? According to Rob Pritchard at research firm benchmark-it, the operator has the right people to make headway in a notoriously tricky market. "It's got a good management team -- that's what's bringing in the money. But it's far from alone in targeting this market, as there's MCI, Cable & Wireless, and others, too. But it's true to say that these medium-sized companies are not well served at the moment."

Pritchard notes that Viatel may have to make some savvy acquisitions to attack the market, and it sounds as if Viatel executives have at least considered the idea.

"In the short term it is clear that the European telecoms market is over-ripe for consolidation," says Viatel CEO Lucy Woods, formerly head of MCI's European business, in an emailed response to questions. "We're in a strong cash position, and fully aware that there are plenty of assets in the market available at a discount to their true value." Right.

Woods wouldn't comment on whether any of the new funding might be invested in the operator's infrastructure, which currently comprises a Nortel Networks Corp. (NYSE/Toronto: NT) transmission network and a Cisco Systems Inc. (Nasdaq: CSCO) IP network.

Meanwhile, other refurbished carriers will continue to hunt for funds. "We're looking at the various options, whether it's a credit facility or raising our debt level," says the Global Crossing spokesman. And after that? "Should there be a need for additional funding in 2005, we expect to meet this by raising additional financing, obtaining additional support from STT or improving our operational results to become cash-flow positive."

Global Crossing posted a net loss of $67 million on revenues of $734 million in the three months to the end of September 2003.

— Ray Le Maistre, International Editor, Boardwatch