The all-stock deal, which is scheduled to close in 90 days and is worth $185 million at yesterday's closing price, is another in a series of telcos buying up Internet access companies. The trend includes WorldCom's August 1996 purchase of UUNet, GTE's May 1996 buyout of BBN for $616 million, long-distance telco IGC Communications' $285 million acquisition of Netcom in October 1997, and Intermedia Communications' $150 million deal for Digex in June of 1997.
Frontier, however, paid a steep price because GlobalCenter's revenues were less than $30 million in 1997. Frontier's stock closed yesterday at 25-7/16, off 5/8 from Wednesday's close.
The acquisition will combine GlobalCenter's ATM backbone with Frontier's national fiber-optic network. Using Frontier network, GlobalCenter no longer will have to pay for lines leased from larger telcos.
GlobalCenter will become Frontier's data communications division, jump-starting Frontier's efforts in this area by adding high-end data services. Frontier's national sales force will add such services, as well as dedicated Internet connections and Web hosting, to its marketing menu.
Global Center chief executive Douglas Hickey becomes a Frontier senior vice president as a result of the transaction. He will report to Frontier chief executive Joseph Clayton and is charged with plotting Frontier's data strategy.
Frontier expects to retain Silicon Valley-based GlobalCenter's 240 employees after the acquisition.
Frontier will issue 6.4 million shares in order to acquire all outstanding shares of GlobalCenter. Up to 900,000 more shares will be available for existing GlobalCenter options and warrants, 65 percent of which vest within four years.
Frontier expects the deal to improve earnings during the first half of 1999, but also expects it to dilute this year's earnings by 5 cents to 6 cents per share, not counting integration costs. The transaction will be accounted for using the pooling of interests.
GlobalCenter, with 8,000 business customers, currently handles 1.5 billion Internet page views every month and up to 250,000 software downloads per day, many from running Netscape's FTP sites.