According to a report in the Financial Times, Pacific Crossing is about to be gobbled up. The company, which runs the PC-1 cable between California and Japan, was once a part of the empire of glbc back in the bubble days. After the crash, Pivotal Private Equity was poised to take control of the company out of BK court. But that deal fell apart and then the assets spent an inordinate amount of time in BK court due to disputes over ownership of landing stations and compensation from its prior owners and such – it looked like they might stay in limbo for eternity. But emerge they did, and after a few years on their own it now appears that PC-1 will now find a real home.
According to the FT article, both NTT Communications (NYSE:NTT, news, filings) and Pacnet have tendered bids in the neighborhood of $80-90M. Those two are the most obvious buyers for the assets. The two Indian carriers Tata Communications and Reliance Globalcom already have major transpacific cables at their disposal, and the major US carriers have invested in TPE and Unity or are otherwise unwilling to to lay out cash for such an asset. I suppose Global Crossing could have bid to bring the cable it back under their wing, but they don’t seem to need it right now and have better places to put their cash.
My money is on NTT, they simply have the motive and means to outbid anyone else, but Pacnet has been aggressive and their backers have money, so who knows.
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Categories: Mergers and Acquisitions · Undersea cables
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Finally the non-telco investors in this system have engaged reality and stopped holding out out for the 200M+ they have been claiming it’s been worth, much to the bemusement of the industry. Actually 80-90M isn’t a bad price right now, given the effect that TPE and the Tata upgrade will have on the market. And that’s without considering Unity, which can no longer be regarded as a certainty if PacNet, its major investor, has indeed bidded for PC-1.
I agree that PC-1 would be worth more to NTT than to other carriers and thus are likely to emerge as the new owners.
While NTT has the deeper pockets, I wouldn’t be surprised if PacNet is the higher bidder here. It is interesting that bids are are only at $80-90m given that 6 years ago Pivotal Private Equity valued it at $63m. I’m not sure if shareholders received dividend payments in the interim, but it is telling how little value can be created in telecom by just sitting on an asset (~6% value accretion per year since 03).
Construction hasn’t started on Unity yet? Interesting…
The loser of the auction should try to build out a cable, see how much the costs have (not) dropped over the years …
Actually, Pacnet is one of the names behind Unity – so in a way they actually are trying to build out a cable.
My sources tell me that things are not great in the Unity camp and this may be why PacNet is looking at alternatives.
I am still searching for the source of PacNet’s cash … they made an enormous splsh about buying AAPT and this disappeared and then they announced “20 to 30 various possible acquisitions” but nothing really has emerged in 12 months.
The investors in PacNet must be feeling the global financial meltdown as much as anyone else and how their investment funds still have cash left to invest in a cable system which is returning less than 6% has me struggling to see how this makes sense.
Interesting the CEO at Pacific Crossing was also the COO at PacNet previously but I hear the departure was not amicable.
Thanks Peter, those are very interesting comments. I suspect we will be hearing more out of the Pacific theater in 2009 than usual.
PacNet pays out an enormous amount of money each year to PCL for OA&M. It makes sense for them to buy PCL and reduce these costs.
The looser here may be Google unless they are providing some of the funding to PacNet for the deal and have guarantees on network capacity.
To correct Peter, the CEO, Head of Sales and the General Counsel are all ex-PacNet and will no doubt be closely reading their change of control agreements and sending out CVs.
I saw an article from Pacnet’s CEO (Mr. Barney – not know for his modesty or accuracy) pushing PacNet’s cash position saying there was “$200M on the balance sheet” when he announced PacNet was still interested in AAPT last month. That was the second AAPT rumour coming from PacNet in 3 months.
I may be wrong but insiders say all cash was swept from PacNet’s balance sheet through a shareholder dividend payment in 2008 and the current balance sheet at PacNet is overshadowed by new debt owed to the private equity investors. PacNet, although privately owned, is known to generate sales around $US400M annually and is barely EBITDA positive.
Let ignore the financial improbability of a cash “war chest” of more than 50% of gross annual revenue and the current abilty of any private equity fund to tap investors for additional investments for one moment.
Based on Mr. Barney’s own statement they can afford $US200M in capex in 2009, PCL will cost roughly half of the cash on hand for a time limited asset offering a return of less than 6%.
The links between PacNet and management at PCL are known. Could PacNet simply be in this bidding contest as the stalking horse to drive up NTT’s bid on a marginal asset ?
PacNet’s bid for PCL simply doesn’t pass the red faced test.
Johson .. this article from the NZ Dominion Post this week about sums up PacNet and how much credibility they have with their bids…
Telecom chief executive Paul Reynolds said suggestions Asian telco Pacnet might acquire Telecom’s Australian subsidiary AAPT should be taken with a pinch of salt.
Pacnet chief executive Bill Barney said Pacnet was interested in acquiring AAPT, but felt the valuation of Australia’s No3 phone company had come down since December, when it reportedly offered A$420 million (NZ$520m) for the company.
Mr Reynolds told The Dominion Post no offer had been made for AAPT.
“Pacnet are trying to buy telcos on four continents, yet no-one has ever heard of them.”
Thanks to all who have commented on this post and several older ones on Pactel, it has been very informative. I had no idea that the drama was quite so fierce under the pacific ocean these days. Pactel does seem to be, err, exaggerating a tad these days – I will keep a closer eye on them… Maybe next they’ll suggest they are bidding on Qwest longhaul? 🙂
Rob and the bloggers got this right .. released earlier today is confirmation of PC1’s sale to NTT
“May 25, 2009
NTT Communications (NTT Com) announced that it has concluded a contract with the shareholders of Pacific Crossing Limited (PCL), operator of the PC-1 trans-Pacific cable network, to purchase all issued shares of PCL, including from Strategic Value Master Fund Ltd., the major stockholder. The deal is expected to be finalized in the near future upon approval by government agencies and completion of regulatory procedures.”
For media watchers, the fact PacNet has resurfaced the old AAPT acquistion story last Friday (Telecom Asia) preempted their lack of success on the PC1 bid. One suspects they are feeling a cash crunch as they search for new and substantially more expensive transpacific options and their investors pressure them to close out with China Telecom.