Global Crossing
Global Crossing is a large
telecommunication company that is based in Bermuda. This company
created one of the largest fiber optic networks in the world. This network
linked many countries and the major cities of the world. The company grew
very rapidly and is now in bankruptcy troubles. This case study explores
what their history is, what lead to their demise and how they plan to get
out of bankruptcy.
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Introduction| 1997 | 1998 | 1999 | 2000 | 2001 |
Global Crossing over the last five years has simply developed one of the most in-depth and comprehensive communication systems in the world. Global Crossings international ventures began with a plan in 1997 to join the United States, U.K., and Germany with a fiber optic cable that would stretch across the Atlantic. 1 Other plans were made that year to join the U.S. with Central America and Japan.
In May of ’98 voice and data transmissions were being sent across the Atlantic wire. In this same year the company announced plans to provide support for an independent cable to connect major cities in Europe, the U.S., and Latin America. 2 As a carriers' carrier they would provide the service and support for this venture. Also in 98 the company completed its first public offering, which totaled near $400 million dollars.
1999 signaled the beginning
of good times for the company. The firm announced that customers had spent
a reported $1 billion dollars for space in the new global system. 1998 also
marked the beginning of a period of key acquisitions for the company. In
early July the company acquired
Cable & Wireless Global Marine
, a company which is the largest layer of undersea cables and the leading
maintenance firm as well. This acquisition gave Global Crossing the ability
to carry out their plans for future projects at a greatly reduced cost.
3 This acquisition was followed up in September with the merger of
Global Crossing and Frontier Corporation. This merger gave the telecom industry
its first truly global provider of fiber optic services. The two
companies connected every major city on five continents and had $2 billion
dollars between them for contractual usage of their services. During the
next month, Global Crossing added the Rascal Telecom company to their list
of acquisitions. The 
Rascal company gave them a huge advantage over other competitors in
the United Kingdom. The final major play the company underwent this year
was a three way venture between
Microsoft
, Softbank
, and Global Crossing to create Global Crossing Asia. This company would
allow for the Asian market to rapidly gain access too new and better telecom
services.
2000 saw Global Crossing continue to acquire new additions to the company. IXnet and IPC were both acquired in June of this year giving the company about two thousand more customers in the financial service industry. The deal gave business the ability to interact with their customers on a global scale. In October of 2000, Asia Global Crossing began trading on the NASDAQ ticker. At the nearly the same time, Global Crossing began to trade on the NYSE . Towards the end of the year Global Crossing spread its already large network of communication into South America. 4 The company connected Brazil, Chile, and Argentina into the global network.
2001 was perhaps the best year of all for Global Crossing. In June, the company announced that the core of their network was operational. This network connected over two hundred cities around the world in twenty-seven different countries. To further emphasize their commitment to the new global network, Global Crossing sold off its local exchange carrier for an estimated $3 billion dollars. This deal came weeks after the company's global network was completed and fully funded. The company ended the year amid talks with Asia Global Crossing to merge the two businesses together. The talks were brought on by the idea that customers would be able to connect "globally" without much hassle. The merged companies would create a nearly seamless network throughout the world.
Fall of Global Crossing and Telecom Industry
On January 28 2002, Global Crossing finally declared bankruptcy. At that time the company was 12.5 billion dollars in debt. 5 Many factors led to the enormous amount of debt and the inevitable filing for bankruptcy. One cause of Global Crossing’s troubles is the changes in technology and a decrease in the economy that affected the whole telecom industry. 6 These factors forced the telecom businesses to react swiftly and those who could not keep pace with this new ever changing environment found themselves in serious financial trouble.A second cause of Global Crossing’s troubles is their faulty accounting practices. The bad accounting led to an investigation by the SEC and the FBI . The company also misrepresented the amount of assets and liabilities they had. It is because of these accounting practices that Global Crossing wound up 12.5 billion dollars in debt and had to file for bankruptcy.
Another problem for Global Crossing is they severely overestimated the demand for their networks. Global Crossing built and operates most of the world’s largest high capacity networks. When the company was founded, the outlook for such large networks was favorable, however the downturn in the economy caused a decrease in the need for high capacity bandwidth consumption. There is also a problem in the placement of the high capacity undersea cables that Global Crossing installed to link their network across the world. Instead of installing the cables where there would be the greatest need, Global Crossing instead put the cables where it was most convenient and cost effective.
A major problem for the
company is the failure of many of the dot com businesses that used their
network to operate. However, when many of these businesses went bankrupt,
Global Crossing stopped receiving revenue from
these businesses. 7 In addition to the loss of income, the demand
for their networks also decreased dramatically leaving Global Crossing
with a huge liability in the form of their large networks and little revenue
to cover the maintenance on such a vast system of cables and other vital
equipment.
Global Crossing also had visions of selling their network space to other companies called resellers. A reseller would sell some of the bandwidth on the Global Crossing network to a business at a negotiated cost, Global Crossing benefits because they are paid by the reselling firm for the use of the network. This was a popular idea a few years ago, however with the downturn in the economy, many of these firms have been unable to compete in the highly competitive telecom industry.
Many
external factors have contributed to the failure of
Global Crossing
, in addition to these there are also some internal factors to consider
as well. Bad management and poor planning are also to blame as a
major cause for the fall of this company. 8 Bad strategic planning
is at fault in that they did not correctly estimate the changes in the economy
and the rest of the telecom industry. Poor allocation of resources
is another cause of failure. The incorrect placement of the undersea
cables caused them many problems and in the long run ended up costing them
much more than they saved. Global Crossing is currently working on
a restructuring plan and only time will tell if they can get back on their
feet again.
Restructure of Global Crossing
Global Crossing announced on January 28, 2002 that they had signed a letter of intent with Hutchison Whampoa Limited and Singapore Technologies
Telemedia Pte. Ltd. for $750 million cash investment. 
"We believe this new equity investment from parties as strong
as Hutchison Whampoa and Singapore Technologies Telemedia validates our
confidence in the strong future of our company," Said Global Crossing CEO
John Legere. 9 Although Global Crossing thought that the bid
from these two firms was very reasonable the creditors thought that the
bid was too low compared to Global Crossing's estimated $22.4 billion in
assets and rejected it. The investment would have bought 79% of Global
Crossing.
Although the two firms planed to make a higher bid, they could not find a middle ground and the talks between them and Global Crossing have fallen apart. 10 The collapse of the talks was announced on Saturday, May 25, 2002, this comes as Global Crossing approaches a June 20, 2002 bid deadline and a open auction planned in early July 2002. Hutchinson Whampoa and Singapore Technologies Telemedia also lose a shared $30 million fee that they would have received if they had been able to get the deal done.
The company is still not worried that they will not come out of bankruptcy because they have had many other offers. "It's hard to know who's actually going to put a bid on the table," Legere said. "But the banks and creditors feel they have something that is going to do very well in an auction." 11 Other companies that are interested in buying Global Crossing include Gores Technology Group of Los Angeles and Verizon Communications . There has been more than 60 other companies that have expressed interest but none have made a bid as of yet.
The creditors committee
is made up of companies such as
Verizon
, an affiliate of
Morgan Stanley
and the major creditor
Lucent Technologies
. The creditors
feel that it might even be possible for Global Crossing to come out
of bankruptcy on their own without outside buyout. The creditors feel
that it would be better if the company could restructure without being bought
out. "We're much more excited about the prospect of a stand-alone
restructuring than the Hutchison-ST Telemedia offer," said Edward Weisfelner,
a lawyer representing the creditors committee. 12
The company announced
on May 29, 2002 that they have a plan to have a stand-alone restructuring
plan. 13 They feel this will attract other bids now that the
two asian firms have dropped out of the bidding. The proposed plan
involves the sale of assets, the main one's being the teleconferencing business,
the UK-based national network and Global Marine division. 14 This
would not collect all the money needed to pay creditors yet it would come
close and only involve a small cash infusion. The reason for the creditors
liking this idea is due to the fact that Global Crossing has gotten there
capital spending down from close $3.1 billion in 2001 to $200 million this
year. The new strategy that the company has under took is working.
Yet another reason that they can't find a new owner is that they are also dealing with troubles in the accounting front and are being investigated by the Security Exchange Commission . They are being investigated for inflating their revenue to make their company look better for investors. The main deal that is being investigated is a deal that Global Crossing made with now bankrupt energy company, Enron. 15 The deal consisted of trading network access rights and network capabilities between each other of equal cost and then reporting that there was revenue made. This is a practice that is called 'round tripping' and is against the rules of the SEC. 16
References
- GlobalCrossing.com, http://www.globalcrossing.com/xml/news/2001/october/04.xml , October 4, 2001.
- GlobalCrossing.com, op. cit.
- Ibid
- Ibid
- Stancavich, Dan.
"Global Crossing files for Ch. 11 Bankruptcy", Chicago Sun Times",
January 29, 2002.
- Knowledge@Warton. " Behind Global Crossing's failure", Feburary 16, 2002.
- Peston, Robert. "Even if some of what the fallen Enron did turns out to be illegal, much of what other companies did to inflate earnings was legal." Management Today . April 2002.
- Ankeny, Robert. "Lessons
from the Fiber-Optic Meltdown", Research Technology Management.
January 2002.
- GlobalCrossing.com, http://www.globalcrossing.com/xml/news/2002/january/28.xml , January 28, 2002.
- GlobalCrossing.com, op. cit.
- Douglas, Elizabeth. "Global Crossing Purchase Effort Dies", Los Angeles Times, May 26 2002.
- Bloomberg News. "Global's Creditors Seek Alternatives", Los Angeles Times, May 22, 2002.
- Berman, Dennis K. and Sender, Henny. "Global Crossing Will Propose Stand-Alone Restructuring Plan", Wall Street Journal, May 29, 2002. B4.
- Berman, Dennis K.,
op. cit.
- Barboza, David and Romero, Simon."Enron Is Seen Having Link With Global", The New York Times , May 20, 2002. Sec. C. Pg. 1.
- Berman, Dennis K. and Sender, Henny. "Global Crossing Swaps Are Probed By Regulators for 'Round-Tripping' ", Wall Street Journal, May 20, 2002.