Last week I wondered at where the larger strategic buyers were hiding in this frenetic M&A season, and I mentioned my own feeling that TW Telecom (NASDAQ:TWTC, news, filings) seemed the best positioned of the larger fiber operators to make a move. That got me thinking about just what TW Telecom would want to buy, given that they didn't seem to be all that interested in all that northeastern fiber that has been changing hands this year. But what if TW Telecom isn't uninterested in M&A, but rather is ready to look for something more transformational than a bit of metro fiber to add to their pile? I have traditionally scoffed at the idea of a combination with glbc, but perhaps it's not so crazy any more. Consider the following strategic drivers for such a deal:
- Metro fiber & margins - Global Crossing is worth the most to someone with enough metro assets to raise the margins on its $2.5B in revenue. I have long thought Level 3 fit well because of that, but TW Telecom is equally well positioned with its 10K+ enterprises on-net and 20K metro route miles.
- Customer fit - TW Telecom has been increasing its focus on larger enterprises lately, which has actually brought the two into an adjacent market position. In fact, Global Crossing's conferencing services are something that TW might be quite interested in bringing into the fold as part of their expansion up the enterprise ladder.
- Intercity fiber - Global Crossing's big fiber asset in the USA is its longhaul network, which is something TW Telecom doesn't have. TW does have some intercity fiber, but most of it is leased capacity from the likes of Level 3 who it now competes with more and more in the mid-market. A national intercity fiber footprint seems to make sense for them now.
- International angle - TW Telecom doesn't have assets outside the US, but Global Crossing's UK and South American businesses don't need any cost savings to be viable. An acquisition like this may be by far the cheapest way to go international.
- Financial feasibility - TW Telecom's stock is high enough to be usable as currency, and I suspect that Singapore would be willing to take it. Thus, there would only be a need to access the capital markets to the tune of Global Crossing's net debt or about $1B. That seems manageable for a deal that makes sense.
- Scale - Size may not be everything, but such a deal would triple TW Telecom's revenues. Organic growth is wonderful, but at 10-15% annual growth it takes so darn long to get that big.
- Conservative Management - TW Telecom doesn't make many big moves, and they don't need to make a deal. They simply may not want to complicate a good thing unless the price is extremely attractive, but Global Crossing might not be willing in that case.
- Tier-1 metro: TW Telecom's metro assets tend to be less well developed in some of the major Tier-1 markets like New York and Washington DC where Global Crossing's international customer base is more concentrated. That might reduce the more easily available synergies.
- Continental Europe - Global Crossing's continental European network would still lack metro depth, though you can't expect *every* puzzle piece to fall in place at once.
- Complexity - While TW Telecom has a solid integration track record, such a deal would be an order of magnitude bigger than anything they've ever tried.
So, what do you think? Am I nuts for considering such a possibility? It would radically shift the bandwidth landscape, and it makes more sense to me now than it ever has in the past. I've always suggested a LVLT/GLBC combination to be somewhat inevitable, but perhaps it isn't the only reasonable outcome.
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