Global Crossing, the telecoms heavyweight which recently committed to providing Ireland with a high-speed, high capacity telecoms link to Europe and the US, has lost over 60 per cent on its Nasdaq share value since May.
The fall from a high of $62 (€58) then, to $22 last week, is mainly attributed to ongoing negotiations for the purchase of US telecoms company, Frontier Corporation, and a failed attempt to purchase Denver-based Baby Bell, US West.
Frontier agreed this week to accept revised terms for its takeover by Global. It finally lifted the share exchange ratio from $40.84 a share, or about $7.62 billion, to $45.99 a share, or about $8.57 billion.
While Global ends up paying more, Frontier has relinquished its right to pull out of the deal. It now gets a 45 per cent stake in the combined company, with Global holding the remainder. The latter had originally agreed that, if its share price fell below $34.56, Frontier could walk away from the deal.
Global shareholders will meet on September 22nd, and Frontier shareholders a day later, to vote on the revised terms. It will come as a welcome relief to Global which had to fight off competition from Qwest for Frontier. At one point Qwest offered Frontier $68 a share, or nearly $12 billion.
Earlier this year Qwest thwarted Global's efforts to enter the US market after Qwest bought US West, even though it had just signed a merger agreement with Global. According to an analyst at Davy Stockbrokers, the recent collapse in Global's share value is largely due to investor confusion.
"By moving in to buy US West, a slow growth, traditional phone company, investors were confused about the strategy. Global Crossing had always been about laying fibre optic cable and selling capacity, the CEO had rubbished traditional phone companies and then suddenly they wanted to buy one."
Shareholders failed to see the attraction of buying into a large and loyal customer base. Global viewed the acquisitions as an opportunity to capture a lot of "last mile" traffic and route it over its own network.
Global has also agreed to buy back up to $500 million in stock after the takeover, and shareholders representing about 75 per cent of its shares outstanding, have agreed to hold onto their shares until at least six months after the deal's close expected later this month.
A number of telecoms companies licensed to operate in Ireland have committed to investing £60 million (€76 million) in the hi-tech infrastructure promised by Global. Nearly half of the 45 licensed telecoms operators in the Republic are believed to have applied to buy high-speed fibre capacity from the Government.
In July the Government and IDA agreed to act as a bandwidth capacity manager for private telecommunications operators wishing to purchase bandwidth from Global.
