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Global Crossing to be acquired by Level 3 Communications

April 12, 2011|By Tiffany Hsu, Los Angeles Times

The tortured saga of Global Crossing Ltd., which went from vast riches to disdain with the bursting of the tech bubble, is coming to an end.

The telecommunications network provider has agreed to be purchased by rival Level 3 Communications Inc. for $1.9 billion.

Global Crossing, which made its founder, Gary Winnick, one of the richest men in Los Angeles before turning him into a symbol of corporate greed, will be acquired for $23.04 a share, a 56% premium on its Friday closing price, pending approval by shareholders and regulators.

Winnick, who is founder and chief executive of the investment firm Pacific Capital Group, did not respond to requests for comment Monday.

The announcement of the acquisition was made before the start of trading Monday. By the end of trading Global Crossing's stock had soared 69% to $24.97, while Level 3 shares jumped 18% to $1.70.

During Global Crossing's heyday in the late 1990s, when it was based in an extravagant Beverly Hills office, the company was valued at nearly $60 billion. It had thousands of employees worldwide and was building up its vast international network of long-distance undersea and cross-continent fiber-optic cables.

Winnick's stock holdings were worth an estimated $6 billion. The Queens native and former ski equipment and furniture salesman lived lavishly in a 64-room mansion overlooking the Bel-Air Country Club. He bought it for $94 million — it remains the priciest home transaction ever in Southern California.

He donated heavily to charity, and the Winnick name adorns a hall at the Skirball Cultural Center, a children's area at the Los Angeles Zoo, a section of the Los Angeles Central Library and other facilities.

But saddled with debt from its network buildup and a shrinking customer base, Global Crossing crumpled into one of the largest telecom bankruptcy filings ever. Hundreds of employees lost their jobs and pensions.

Winnick, who sold more than $700 million in stock before the bankruptcy filing, was the subject of investigations but never charged with a crime. Through settlements and a fund he set up, he paid tens of millions of dollars to shareholders and former employees.

In addition to heading up Pacific Capital Group, Winnick is founder and chairman of iCrete, a company whose concrete formula is being used in the new World Trade Center in Manhattan.

Global Crossing, now incorporated in Bermuda but operating out of New Jersey, is now 60% owned by Singapore Technologies Telemedia. That company has agreed to support the acquisition and will be able to appoint several members to Level 3's board.

Level 3 will pay $1.9 billion in stock and assume $1.1 billion in debt to acquire Global Crossing.

Last year, Broomfield, Colo.-based Level 3 lost $622 million and Global Crossing lost $172 million, according to their annual reports.

The market for long-distance fiber-optic networks has been difficult since competitors such as AT&T, Sprint and Verizon got into the game, said Donna Jaegers, an analyst with D.A. Davidson & Co. A resulting supply glut was made worse as technological improvements boosted fiber's performance and capacity.

"Telecom has been like a kids' soccer game — wherever the ball is, everybody runs after it. You can't get them to hold their position," Jaegers said.

Global Crossing had been especially aggressive in its pricing — "a loose cannon with enough capacity to be dangerous," Jaegers said. Consolidation into Level 3 is "the first realistic step in a while" toward stabilizing prices, she said.

The deal is expected to close before the end of the year.

tiffany.hsu@latimes.com

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