Global Crossing in Fire Sale

Global Crossing announced today it is taking "bold new measures" to bring costs into line with revenues. The cuts include more redundancies and real estate sales, as well as voluntary pay cuts by Global Crossing executives. Global Crossing has attacked

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Global Crossing announced today it is taking “bold new measures” to bring costs into line with revenues. The cuts include more redundancies and real estate sales, as well as voluntary pay cuts by Global Crossing executives. Global Crossing has attacked its costs aggressively since John Legere was appointed CEO in October last year, but the cuts failed to prevent the company seeking protection from its creditors in Chapter 11 in January this year, and the latest measures are drastic.

800 staff will go voluntarily today but, since fewer than one in ten staff opted for voluntary redundancy, another 1,600 employees – most of them in administration and sales – will have to be fired. The aim is to cut headcount from a peak of 15,000 employees at the beginning of 2001 to fewer than 6,000 employees by the end of this month. “We deeply regret that we must make additional reductions in our staff,” says Legere.

“In order to preserve as many jobs as possible, we are also reviewing salary adjustments. To start that process, and as an indication of my personal commitment to turn Global Crossing around, I have taken a 30p per cent reduction in salary, effective immediately.”

Shedding 71 surplus offices with 1.2 million square feet is expected to yield annual savings of approximately $150 million. In all, these measures are expected to reduce operating expenses from $1.5 billion in 2001 to an expected $900 million in 2002 with a projected year-end run rate of $720 million, excluding Asia Global Crossing. Capital expenditures are also being dramatically reduced from $3.2 billion in 2001 to a budget of $200 million in 2002 (again excluding Asia Global Crossing).

Nevertheless, Legere’s optimism is undaunted. “We’re taking these significant actions on top of the decisions already implemented, and in parallel with our ongoing restructuring process,” he says. “Not only are we committed to delivering a healthy balance sheet, we are on a clear path to becoming the world’s most cost efficient and globally competitive data communications service provider. We have the network, technology and customer base in place – and now we will develop an athletic organization to leverage our existing strengths. At the end of the restructuring process, we will emerge a lean, tightly integrated organization with world-class productivity and an ability to quickly scale up as demand increases. As we continue to improve our cost structure and operating efficiencies, we become increasingly attractive to strategic investors, financial investors and to our customers – who will benefit from this transformation as we become more efficient and service delivery improves.”

Cynics will not that Legere will have no trouble implementing one aspect of his plan: slower growth in revenues and customers. SWIFT is already looking to appoint a new provider.

Non-core assets are also being lined for sale. First on the block is likely to be the conferencing and the national network in the United Kingdom. Global Crossing acquired the conferencing unit in 1999 as part of the acquisition of Frontier Corporation. The conferencing division offers video, audio, and web conferencing. Anthony Christie, senior vice president of product management, is in charge of turning it into a stand-alone business and finding a buyer.

The UK network, acquired as part of the acquisition of Racal Telecom in 1999, includes 8,000 kilometres of fiber and reaches more than 2,000 cities and towns, delivering managed data services to government and commercial customers. Global Crossing intends to retain its other UK assets.

In December 2001, Global Crossing completed the $360 million sale of its IPC Trading Systems unit to an investment group led by Goldman Sachs Capital Partners 2000 (GSCP). Earlier in the year, Global Crossing announced that its Global Marine Systems division was also for sale. Global Marine provides submarine fiber optic cable installation and maintenance services.

“In all cases, when talking with potential investors, we will encourage them to consider an ongoing relationship with our organization,” Mr. Legere added. “When we sold IPC Trading Systems, we retained our relationship as a preferred global network services provider. We intend to do the same as part of possible negotiations in these two new cases. Our network reach, capacity and reliability are still integral to the success of these businesses, and while we believe both the UK national network and the conferencing division are attractive investments independently, our in-place network access will continue to add value.”

Global Crossing is still likely to be sold. Indeed, Chris Nash, senior vice president of corporate development has been appointed to work with the growing number of potential investors interested in acquiring Global Crossing, as well as managing the potential sale of portions of Global Crossing’s businesses.