Global Exodus

Exodus, Global Crossing make $10 billion deal.

by Jim Wagner
[September 28, 2000]

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 (NASDAQ:EXDS) 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 (NASDAQ:GBLX), 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. (NYSE:T) and Qwest Communications (NYSE:Q) 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, its core competence.

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