Exodus to buy Global Crossing unit

2 min read

Exodus Communications, Inc. (Nasdaq: EXDS) confirmed Thursday it will buy a stake in the GlobalCenter subsidiary of Global Crossing Ltd. (Nasdaq: GBLX) for around $6.1 billion.

The long-speculated deal comes two months after the companies abandoned initial negotiations. Terms call for Exodus to issue shares worth $6.53 billion divided by the average closing price of its stock prior to the closing of the deal, subject to a collar.

Shares in Global Crossing, which is building a global fiber optic network, were up 0.62 to 30.5 on the Island ECN before market open. Exodus, which provides web hosting to business customers, was down 3.75 to 49.5 in pre-market trading.

Based on the collar and Exodus' closing stock price of $53.25 on September 27, the deal is now worth about $6.1 billion. The transaction is expected to add to Exodus' EBITDA in 2001. It will be accounted for as a purchase and is expected to close in the first quarter of 2001.

Together, the companies have a pro forma annualized recurring revenue run rate of $1.0 billion, 32 Internet Data Centers, almost 4,000 customers, and partners that include Cisco (Nasdaq: CSCO), Compaq (NYSE: CPQ), Dell (NYSE: DELL) and Microsoft (Nasdaq: MSFT).

The companies also signed several other agreements as part of the deal, including a 10-year network services agreement; a joint venture for web hosting in Asia, of which Exodus will own 67 percent, and Asia Global Crossing 33 percent; and a a marketing services agreement whereby Global Crossing will offer and co-brand Exodus' web hosting services to its customers.

Global Crossing had first intended to take its GlobalCenter subsidiary public, but "the merger of GlobalCenter and Exodus better achieves our goals," said Global Crossing CEO Leo J. Hindery, Jr. in a statement. Exodus said it will realize efficiencies as a result of the combination, but the deal will not expected to result in any lay-offs. The combined company is positioned in the growing U.S. web hosting market which, according to Forrester Research, is expected to reach $20 billion in 2004.

After the deal's close, Global Crossing will own about 16.1 percent to 18.3 percent of Exodus. Global Crossing will be subject to sale restrictions on its Exodus stock for 1 year.