Differing Failures

Commentary by Mark Lacter

Only hours after its bankruptcy filing, Global Crossing became Enron Lite. Same accounting firm, similar financial shenanigans (with shades of dot-com madness) and, of course, all those wronged investors who got snookered by a red-hot stock. If there's one thing us newsies love to do is lump together stuff as examples of a bigger trend.

But drawing parallels between Enron and Global Crossing is not only a big waste of time but a distortion. There were just so many differences.

Enron, to begin with, routinely made money each quarter (though how much is in dispute), while Global Crossing, spending billions to lay down its broadband pipe, kept losing money big time.

Enron was an upstanding corporate citizen in its home city of Houston (with the ballpark in its name, the philanthropic outreach, etc.), while the ungrounded Global Crossing had its official headquarters in Bermuda (for tax reasons), but its day-to-day operations in Beverly Hills and New York.

Enron had a loyal workforce that wholly bought into the mantra that their culture was different, and more advanced, than any other in corporate America and that, eventually, everyone else would be mimicking them (though never as well). Global Crossing was a study in revolving doors, with a half-dozen CEOs in less than five years.

The most important difference was the fundamental structure of both companies. Enron eschewed traditional assets, choosing to make its money through complex commodity derivatives that allowed it to maintain a high credit rating, which, in turn made it easier to raise capital. Global Crossing's business was more straightforward but also more capital intense: the laying down of fiber-optic pipe under the ocean floor that would be used as part of the nascent revolution in broadband communications.

Global Crossing, in fact, had invested so much money in its first couple of years and had so little coming in that even Wall Street sharpshooters were hesitating. The first sniff of that came in May 1999, when the company made an audacious bid for US West.

I remember that episode well because the Business Journal was in the midst of crowning Global Crossing Chairman Gary Winnick the richest person in Los Angeles, with a net worth of $6.2 billion based largely on his Global holdings. Just as that portion of the paper part of our annual Richest Angelenos report was being sent to the printer, Wall Street reacted unfavorably to the US West bid and Global Crossing stock took a nosedive. Within a matter of days, the $6.2 billion was down to $5.5 billion still good money but reflective of a volatile company in a volatile market. Little did anyone know that the stock ultimately would slip to under a buck same as Enron.

But it's not the same, and it's reflected by what they leave behind.

For Enron, it's little more than air. There has been some talk about reorganizing, but after all the investigations and litigation and disavowals of its cockamamie energy trading model, this company will disappear before our eyes.

Global Crossing, on the other hand, has a legacy of pipe that someone else will milk in the coming years, as kids pull down movies off the Internet, doctors examine patients in other cities, and military strategists deliver orders to foot soldiers a half a word away applications that require high-speed data transmission.

All companies are different, even in bankruptcy, and even though the story of Global Crossing is not entirely noble, it's not Enron lite or heavy.

Mark Lacter is editor of the Business Journal.

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