Copyright 2003 MarketWatch.com Inc., All Rights Reserved

CBS MarketWatch

June 1, 2003 Sunday

New York (CBS.MW) — Federal regulators will take up financier Carl Icahn’s surprise offer to take over Global Crossing Ltd., further complicating an already clouded picture surrounding who will ultimately acquire control of the company.

With his offer, Icahn’s cast his eye on a telecommunications enterprise whose brash accounting methods ended in a spectacular collapse last year.

XO Communications (XOCM), itself an alternative telecom carrier that plunged into Chapter 11 bankruptcy before Icahn acquired it several months ago, said late Friday that it’s offering to buy Global Crossing in a cash and stock offer valued at $700 million.

Reston, Va.-based XO Communications provides bundled voice and data services for small and midsized companies, while Global Crossing’s key asset in an underwater cable system connecting across the Pacific to a number of key metropolitan areas.

“Our proposal… provides tremendous synergies between the two organizations that can benefit both Global Crossing’s creditors and XO shareholders,” Icahn said in a statement. A spokeswoman for Global Crossing declined to comment on XO’s proposal, $250 million of which is in cash. The balance is in secured notes, junior preferred stock and warrants.

XO is hoping to convince Global Crossing’s bondholders and creditor banks that its offer provides greater value than a proposal offered previously lodged by Singapore Technologies Telemedia.

Global Crossing has already accepted the latter’s $250 million offer, an agreement awaiting approval by regulators and the federal bankruptcy court overseeing its Chapter 11 proceedings.

Last August, Hutchison Whampoa and ST Telemedia reached a joint deal to buy a 61.5 percent stake in Global Crossing for $250 million, which was approved by the bankruptcy court.

But in April, Hutchison (HUWHY) dropped out when a federal inter-agency group said it would open a new investigation into the acquisition. Regulators have raised national security concerns regarding control of Global Crossing.

IDT Corp. (IDT) has also made a nearly $225 million bid for Global Crossing’s assets.

Florham Park, N.J.-based Global Crossing had a market capitalization of $40 billion and a $50 share price in 1999.

But the telecom delivery network took on billions in debt to build its fiber optic cable system, which now spans 27 countries and 200 major cities. As the market economy waned, and the telecom sector with it, Global Crossing allegedly started improperly booking swaps of capacity with other carriers as cash transactions.

Global Crossing (GBLXQ), with $12.4 billion in debt, collapsed and filed for bankruptcy protection early last year. At that time, the filing was the fourth largest in U.S. history.

The Securities and Exchange Commission investigation into Global Crossing’s accounting irregularities is continuing, a spokeswoman said Friday. Icahn declined to comment on the SEC investigation into the company.

“There are a lot of synergies there,” he said of XO’s bid. “We don’t have long line capacity and Global does.”

Global Crossing is also paying regional Bell operating companies (RBOCs) for the last mile, which XO could take on, he said.

Initially, Icahn was not all that interested in Global Crossing but he was approached by one of the company’s creditor groups.

XO’s offer is also higher than ST Telemedia and is more certain of gaining regulatory approval. “We are not a foreign carrier,” Icahn told CBS.MarketWatch.com. “This is an opportunity for Global Crossing creditors.”

Global Crossing is yet another example of Icahn’s penchant for distressed companies. Most recently, he gained control of XO, when it emerged from bankruptcy in January. Last week, Icahn dropped his bid to force Visx Inc. (EYE) to merge with another company. Icahn, through affiliates, was the largest shareholder of the laser eye surgery firm but apparently sold his shares when he failed to place a director on the company’s board.

But Icahn is best known for his takeover of TWA in 1985. He took the troubled airline private in 1988, a move that saddled TWA with $540 million in debt. In 1992 the airline filed for bankruptcy protection.