Features

Global Crossing shareholders to file alternate bid

By Simon Avery, The Associated Press
Friday February 22, 2002

LOS ANGELES — A group of Global Crossing Ltd. shareholders intends to file an alternative rescue plan Friday for the telecom network firm that would save investors’ holdings and kick out many of the top executives. 

The company detailed a bankruptcy plan Jan. 28 under which it confirmed shareholders will likely receive nothing. 

The shareholder group, which is led by Coburn Meredith, a small investment firm in Hartford, Conn., and includes a grass-roots collection of individual investors, intends to file its bid with the U.S. Bankruptcy Court in Manhattan. 

The proposal involves raising about $1 billion by issuing warrants that would guarantee holders the right to buy Global Crossing shares at a set price in the future, sources familiar with the bid said. Coburn Meredith faces a quiet period until the filing. 

Lawyers for the group will try to convince Judge Robert Gerber that there would be sufficient demand for the warrants. 

Several independent experts called the effort extremely unusual. They expressed doubt the plan would succeed, saying bankruptcy law favors a company and its creditors and that few investors are likely to bet more money on Global Crossing. 

“This company is very far gone. I don’t see any ability to raise equity capital,” said Harry DeAngelo, professor of finance at the University of Southern California’s Marshall School of Business. 

Although the shareholders are not trying to buy out Global Crossing, they do want to gain control of the majority of seats on the board. 

John Schmidt, a spokesman for Global Crossing, said the company was not aware of the shareholders’ efforts but is obligated to consider other offers. 

As part of Global Crossing’s own bankruptcy plan, two Asian firms would receive 79 percent of the company in return for investing $750 million. Creditors would jointly own 21 percent and receive $300 million in return for forgiving about $12.4 billion of debt. A court hearing on the sale procedures is scheduled for March 7. 

It isn’t clear how much shareholder who support the plan will receive, but many shareholders interviewed said they still believe Global Crossing’s fiber optic network linking 27 countries is a winning investment. 

They said the assets had been mismanaged by a team of executives who misled investors. 

“They would not have that network without the shareholders,” said Diana Conley, an investor in Houston, Texas, who spent about $9,000 buying shares during the last year. 

“This is a public company. They have no right to treat us like a personal piggy bank. The shareholders own the company, although (chairman) Gary Winnick may act like he owns it,” said Jay Province of Charlottesville, S.C. 

The 44 year-old Web developer said he invested $25,000 in Global Crossing last September as part of a plan to save for his two children’s university education. 

A common complaint among shareholders is that even though they knew the risks of investing in telecommunications, they never knew ahead of time that Global Crossing was bolstering revenues by swapping network capacity with its own customers. 

An internal letter by Global Crossing’s vice president of finance in August said the practice needed to be investigated because it appeared to intentionally mislead investors. 

Global Crossing never made the concerns of Roy Olofson public and didn’t inform its auditors until late January. Schmidt said the company adheres to all generally accepted accounting principles and determined an investigation was not merited. 

But shareholders said they would not have invested if they had the information. 

“If I’d known, absolutely I would have gotten out,” said Gene Ray, a retired pastor in Miami who invested about $200,000 in Global Crossing over a two-year period ending last October. 

Some said they invested after comments in the fall by John Legere, the company’s new chief executive, that the firm was fully funded through 2002 and that bankruptcy was not a possibility. 

“We can’t make intelligent investment decisions based on lies,” Conley said. 

Schmidt responded that the company tells shareholders what it knows to be true at the time. 

The shareholders also expressed doubt that regulators and any amount of new laws can prevent future flameouts like Global Crossing. Instead, they say shareholders have to exert more control over the executives who are managing their investments. 

Global Crossing will be a crucial test case, said Province. 

“I really want to fuel the fire and get people motivated. Otherwise we’re going to have falling capital markets and a lot of angry people,” he said. 

Some independent experts agree that the collapse of large, seemingly well-run firms like Global Crossing and Enron Corp. will undermine the stock market unless shareholder confidence is protected. 

“There’s a risk here that there could be a long-term impact if enough investors become unwilling to invest,” said Christine Rosen, professor of business history at the Haas School of Business at the University of California, Berkeley.