Yesterday, the Times Online reported Global Crossing might be selling its UK operations, and I contended that this likely would mean that in fact the whole company is being sold – in pieces to maximize the value for their majority owner STT. But who would buy them? In the absence of a bona fide rumor, let’s just apply a bit of logic.
I pose the following criteria for a buyer:
- The resources to spend $3B including integration on the deal
- Metro facilities in the USA, with which to lower GLBC’s access costs
- No fear of owning and operating submarine cables and serving an international clientele
- Diminished interest in the UK operations
Now let’s do some elimination. First, the UK operations would be of interest mainly to the competition in the UK which would have the most synergies, namely BT or C&W or COLT etc – no big surprise there and a purchase of GCUK by any of them would be news but wouldn’t really change the game much. The more interesting question (to me) is who would *not* value the UK operations as highly, i.e. who would want to buy the rest but not be willing to pay up for GCUK? I think if one looks at it this way, most European-centric telecoms can be eliminated.
Given the last few years of active M&A, the first American candidate that leaps to mind is Level 3. In a perfect world, they would be an instant choice and likely correct, but right now they simply aren’t ready for another M&A and even if they were the financial firepower just isn’t there. One can quickly cross the other nextgen telecoms: XO doesn’t have the power and Icahn is busy with Motorola and Yahoo. Qwest, TW Telecom and Paetec have no international aspirations that I can see and no burning reason to do anything so drastic, and nobody else is big enough. Sprint is not in a position to be interested right now, with all their other troubles, which leaves the big two. Of course, one can never count out AT&T or Verizon, but I just don’t see the driver for them and I think they would value the GCUK business as highly as anyone.
So if not the Europeans, and not the Americans, then who? Well, there are candidates from Asia which have the financial resources, the international ambitions, less interest in local UK operations, and yes even in some cases Metro assets in the USA or the ability to acquire some. Heck, GLBC has been owned by an Asian entity (STT) for 4 years now, it shouldn’t come as a surprise. I am thinking, of course of companies like VSNL, Reliance, Telstra and PacNet. PacNet? Who is that you ask? It is the latest incarnation of the assets that used to be known as Asia Global Crossing, which passed into and then out of the hands of China Netcom under the name Asia Netcom, and which are now in the hands of private investors with deep pockets. Could PacNet be putting Frankenstein (the pre-BK GX empire) back together again for pennies on the dollar? Now that would be quite a sight to see.
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