It’s official: The rumored Exodus
Communications, Inc.–Global
Crossing, Ltd., merger is the real deal, with Exodus shelling out $6.1
billion in common stock Thursday for Global Crossing subsidiary Global Center, Inc.
Maybe.
A clause in the agreement stipulates that if Exodus
stock reaches $56.40 to $65.55 in the ten days prior to the actual sale,
Exodus will release shares and options equaling $6.5 billion.
At the time of the announcement, Exodus shares were valued at $50, a drop
of more than $3 per share in the morning since the announcement was
made. Global Crossing , on the other hand, saw an
increase in the same morning of more than $2 per share to $32.
The merger gives the new company 32 Internet data centers worldwide to meet
the growing demand for Web hosting services and lets Global Crossing focus
on its fiber-optic network deployment. According to a Forrester Research report, more than
$20 billion will be spent in 2004. According to Global Crossing officials,
the combined company is expected to draw $2.3 billion in 2001.
The deal also marks the start of a 10-year networking agreement worth
around $4.1 billion, where Exodus will buy at least 50 percent of its
bandwidth and equipment from Global Crossing for a discounted price. In
exchange, Exodus is the Web host of choice for Global Crossing.
Leo Hindery, Jr., Global Crossing chief executive officer and GlobalCenter
chairman and chief executive officer, assured stockholders the agreement
was the best option, as opposed to sending GlobalCenter public in a press
conference held Thursday.
“At the start of this year, we promised Global Crossing’s shareholders that
we would quickly increase the value of our GlobalCenter subsidiary and take
steps to realize such value for our shareholders,” Hindery said. “Our
first intention was to take these assets public, but the merger of
GlobalCenter and Exodus better achieves our goals, bringing Exodus and
Global Crossing together in an extraordinary and unparalleled high-growth
partnership.”
“About a year ago, I met with Helen (Hancock, Exodus chairman and chief
executive officer),” Hindery said. “She was the first person to reach out
with this offer. Several weeks ago I came to the realization that would be
better for our shareholder’s to work with Ellen’s company instead of going
public.”
Hancock said Thursday the deal gives business customers a complete package
when going with one of the two companies for business.
“Today’s announcement represents a major strategic milestone for our
company,” Hancock said. “This combination will give us the additional
scale, scope and international reach to extend our position as the
preferred provider of mission-critical web hosting solutions to customers
worldwide.
“Our global network of Internet data centers will now be ‘on net’ with
Global Crossing’s state-of-the-art international IP network, providing
Exodus with superior network quality of service,” she added.
Hancock said the company has kept its contracts with other bandwidth
providers like AT&T Corp.
and Qwest Communications
short-term to take advantage of the ever-decreasing price of
bandwidth. The current contracts, she said, will continue until they
expire, and at least 50 percent of all new bandwidth purchases will go to
Global Crossing.
A report issued by Goldman, Sachs & Co.
Investment Research calls the deal a catalyst for both companies stock
and positions the merged entity to capture a good share of the Web hosting
market.
“We believe the Exodus deal is very positive for Global Crossing,” the
report stated. “It produces network demand that will exceed what it could
produce on its own, and this is the primary reason for any network operator
to be in the hosting business. It provides greater certainty and
visibility on revenue growth, and allows Global Crossing to focus on
running networks, it’s core competence.”