Mergers & acquisitions

VSNL Buys Tyco's Subsea Network

India's main telecom operator Videsh Sanchar Nigam Ltd. (VSNL) (NYSE: VSL) bought its way into the international subsea capacity market today, paying $130 million for Tyco International Ltd.'s (NYSE: TYC; London: TYI) global network (see VSNL Buys Tyco's Subsea Networks).

The move follows the carrier's award of an international license by the Federal Communications Commission (FCC). (See India's VSNL Wins FCC US Appoval.)

The purchase makes it one of the top three leading players in the international undersea capacity business, alongside Global Crossing Holdings Ltd. (Nasdaq: GLBC) and rival Indian operator Reliance Infocomm Ltd., which also bought a strong position in the market through its purchase of Flag Telecom (see FLAG Amalgamates With Reliance).

The two Indian operators have a tense history regarding the control of network capacity in and out of India, and engaged in a war of words about the issue earlier this year (see FLAG Hits Out at VSNL Monopoly).

So are they now direct competitors on the ocean floor? Not really, says TeleGeography Inc. senior research analyst Alan Mauldin. He says VSNL has acquired a strong position on the transpacific route, where it is the only player with terabits of capacity, while Flag has been very strong connecting Europe, the Middle East, and extending east into Asia, where it intends to build out further capacity (see Flag Flies After Subsea Market).

The analyst says the only routes where they overlap at present is running eastwards out of India towards Singapore and on the transatlantic connection, where Cable & Wireless plc (NYSE: CWP) holds a particularly strong position with its Apollo network.

The two players may compete more in the future as they expand their respective networks, says Mauldin, but the main concern for all the subsea players is whether they can make any money in this market.

He says that while VSNL may have acquired the Tyco network at a fraction of the original cost -- he estimates Tyco will have spent about $3 billion building its global network -- all subsea networks cost a lot to maintain and manage, and the cost of capacity at present is very cheap. "This may look like a good deal, buying a network at cents in the dollar," but that doesn't mean that VSNL will automatically make it profit in the international capacity business, says Mauldin.

— Ray Le Maistre, International News Editor, Light Reading

COMMENTS Add Comment
dwdm2 12/5/2012 | 1:07:42 AM
re: VSNL Buys Tyco's Subsea Network The source of previous post is

dwdm2 12/5/2012 | 1:07:42 AM
re: VSNL Buys Tyco's Subsea Network NEWS ANALYSIS
By Steve Rosenbush

Tyco Cuts Its Cables -- and Losses
India's Tata Group is buying the outfit's globe-girdling telecom network for a mere $130 million

Industrial powerhouse Tyco (TYC ) has sold its Global Network, valued during the tech boom at $3.5 billion, for a mere $130 million. The assets were bought by Indian conglomerate Tata Group, which is in the midst of a major global expansion of its VSNL telecom unit. VSNL provides Internet services to businesses.

The difficulty of the auction, which was run by Tyco banker Goldman Sachs GS , reflects ongoing economic difficulty in the long-distance telecom markets. The talks, first reported July 16 by BusinessWeek Online, dragged on months longer than some originally expected (see BW Online, 7/16/04, "An Indian Rescuer for Tyco's Cables?"). Moreover, the price fell well below the $200 million that some industry insiders expected.

OVERHAUL EXPECTED. Overcapacity and brutal price wars, at their most extreme in the international sectors that Tyco tried to crack, contributed to the bankruptcies of rivals such as Global Crossing (GLBC ) and 360 Networks. Global, which emerged from bankruptcy in 2003, continues to struggle. That same year, Columbia Ventures acquired 360's transatlantic cable, once valued at $770 million, for just $17 million.

Tata is betting that it can build a viable business from the telecom wreckage. It's spending $3 billion on the VSNL overhaul. "The agreement is a major step forward in our ongoing drive to offer our enterprise and carrier customers seamless, end-to-end telecommunications solutions that encircle the globe," N. Srinath, director of operations, said in a statement. Tata says it has established a presence in the U.S., Europe, Singapore, and Sri Lanka.

Represented by banker DSP Merrill Lynch, of Mumbai, Tata originally had several rivals for Tyco's global underseas- and transcontinental-cable network. Indian conglomerate Reliance Infocomm and Phoenix-based Pivotal Private Equity, had expressed interest. But Reliance, which acquired assets of bankrupt Flag telecom last year, didn't appear to need Tyco's cable as much as Tata did. And Pivotal, which owns Internet domain-name pioneer Network Solutions, didn't need the Tyco network for the sort of fundamental strategic reasons that motivated Tata.

WELCOMED EXIT. Tata is expected to move ahead quickly. Regulatory approval in the U.S., India, and elsewhere is expected within six months, a person familiar with Tata's planning said. No job cuts are expected.

As for Tyco, the deal represents a form of corporate closure. CEO Ed Breen, the Motorola veteran who succeeded embattled former Tyco chief Dennis Kozlowski, has finally extracted the company from one of its most troubled markets. The price won't inspire much envy at cocktail hour, but at least Tyco can move on.
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