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Monday, Dec 4, 2023

TELECOM – Global Crossing Heads Into Next Phase

Some days, Gary Winnick must look around him and wonder where everyone went.

The chairman and founder of Global Crossing Ltd. isn’t lacking for employees he has somewhere around 14,000 of them. But the people with whom he started the company less than four years ago have either left or will do so soon. And that speaks volumes about how fast it has grown and where it is headed, which may or may not be toward a takeover.

Winnick started the Bermuda-registered, Beverly Hills-based telecommunications company with three partners from his investment firm Pacific Capital Group: Abbot Brown, Barry Porter and David Lee. Ex-senior vice presidents Brown and Porter both left Global Crossing last month, while retaining seats on its board of directors. Lee, currently the company’s president and chief operating officer, apparently is on his way out. In addition, Robert Annuziata left in early March after only a year as chief executive.

That’s an extraordinary amount of top-level turnover for a company the size of Global Crossing. But with the exception of Annunziata, it is apparently just a case of entrepreneurs happily taking their winnings and leaving authority to a group of seasoned corporate managers who can build on the company’s astonishing growth.

“I completed my mission there; I loved what I did,” said Brown, who officially left Global Crossing on March 31 to form his own equity firm, Ridgestone Corp., which he is funding with $100 million of his own money. “The Global founders have brought in industrious managers to run the company. Frankly, part of my reason for leaving was to get out of the way. I think it’s a matter of public record that Barry Porter and David Lee would leave the company in due course. They’re in the same position I am.”

All three men will continue to have major stakes in Global Crossing. Brown reckons he will be the fourth-largest individual shareholder with around 12 million shares, once an equity offering now underway at $33 a share is completed. He is selling just about 1 million shares, according to Securities and Exchange Commission filings.

Porter and Lee are each selling about 1.2 million shares, leaving them with around 19 million and 21 million shares, respectively. Winnick, who is selling about 8 million shares, will remain the largest single shareholder with close to 90 million shares.

The four men started Global Crossing by buying an undersea cable operation from AT & T; Corp. for $750 million. It quickly became a major player in the telecommunications field, selling space on its growing worldwide network of fiber-optic cable to phone and Internet companies, and Wall Street flocked to its stock.

Embarking on a major spending spree, Global successfully merged with domestic carrier Frontier Co., but failed in its attempt to take over US West Inc. It has launched an Asian joint venture with Microsoft Corp. and Japan’s Softbank Corp. And in so doing, it has essentially outgrown the entrepreneurs who started it.

Brown, Porter and Lee are all entrepreneurs at heart, men who were at their best doing deals. But now that Global has positioned itself as a force to be reckoned with, their talents are less important.

“Frankly, if you look at how incredibly quickly the company grew and transformed itself, it’s natural to see this kind of change in management,” said Daniel Fletcher, an equity manager at Lehman Brothers Inc.

Global Crossing’s management was clearly in need of streamlining. A year ago, there were almost enough vice chairmen, co-chairmen and co-founders to field a baseball team.

But departures of the various co-founders and the replacement of Annunziata with Leo J. Hindrey Jr., who joined the company in December as CEO of subsidiary GlobalCenter Inc., have changed much of that. Joe Clayton, who was head of Frontier, and Jack Scanlon, who preceded Annunziata as CEO, relinquished their vice-chairman titles when Hindrey took over. Clayton heads North American operations and Scanlon heads Asia.

“The board and management team was too big,” said telecom analyst Eric Melloul of Argus Research. “Some people are leaving because their roles aren’t as big, but that’s for the best.”

Takeover in the cards?

Exactly what the company will do now that its chain of command is streamlined is a subject of intense interest.

Hindrey is credited with rescuing cable giant Tele-Communications Inc. from financial ruin and selling it off to AT & T;, and his appointment as CEO added to speculation that the company was preparing itself for suitors, given the consolidation fever now raging through the telecommunications industry.

Current Global Crossing executives were unavailable for comment, but Brown said it’s clear that the company, with its vast communications network, considers itself available for purchase if the right deal were to come along.

“Global has a very valuable asset, and obviously there are a lot of people who don’t have it but who would like to have it,” he said.

However, a source close to the company said that, while anything is possible, Global isn’t actively shopping itself around right now.

“If it’s a public company, it’s always for sale at the right price, and the telecommunications business changes every 20 seconds,” the source said. “But this is a company that is not actively looking on the sell side.”

So where does all the restructuring leave Winnick, the man most identified with the company? Apparently he’s content to be where he is. Of the four founders, the ex-junk-bond salesman is probably the most entrepreneurial of the lot, and yet apparently he has no intention of leaving. He will remain as chairman, although it is likely he will simultaneously keep his fingers in other pies. (Winnick remains head of his Pacific Capital Group investment firm, which is actively doing deals.)

“(Global Crossing) is Gary’s baby, this is Gary’s vision,” said another source close to the company. “He’s always been behind it. He isn’t going anywhere.”

The company’s stock has fallen amid the sell-off on Nasdaq, forcing it to restructure a recent equity offering. The company had originally planned on raising $3.25 billion through the sale of 58 million shares of common stock, but restructured the deal last week and issued only 43 million shares, raising about $2.4 billion.

But the cash gives the company enough to finance its business plan, including a couple of recent acquisitions.

And the fact that half of the offering came from insiders may be a sign that no merger deal is imminent. After all, news of such a deal could well send Global’s share price upward, and yet the primary shareholders were willing to part with much of their equity.

“That is certainly a reasonable conclusion,” said one analyst speaking on the condition of anonymity.

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