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Exodus buys GlobalCenter
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September 28, 2000: 3:03 p.m. ET
Web hosting business acquired from Global Crossing for $6.5B in stock
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NEW YORK (CNNfn) - Exodus Communications Inc. agreed Thursday to buy Global Crossing Ltd.'s GlobalCenter Inc., a specialist in hosting Internet site infrastructure and managing e-commerce, for about $6.53 billion in stock.
The deal will make Exodus the world's largest Web-hosting business, and Global Crossing (GBLX: Research, Estimates) will become Exodus' largest shareholder.
Exodus will pay $6.53 billion in common stock for GlobalCenter, provided its average share price for the 10 days before the transaction is between $56.40 and $65.55.
If the average price is below $56.41, Exodus will issue 115.7 million shares, and if the average price is above $65.55 it will issues 99.5 million shares. Based on Exodus' Tuesday afternoon price of $50.13, down $3.13, the deal is worth $5.8 billion.
 The combined company will have 32 Internet data centers and 4,000 customers, as well as big-name strategic partners such as Microsoft (MSFT: Research, Estimates), Cisco Systems (CSCO: Research, Estimates) and Sun Microsystems (SUNW: Research, Estimates).
"With GlobalCenter, we will have an expanded customer base into which we can sell our comprehensive suite of managed services," Exodus Chairwoman and CEO Ellen M. Hancock said. "These critical advantages, coupled with the extraordinary depth of talent our combination creates, will enable us to continue to provide the leading edge solutions that our customers demand."
The deal expands Exodus's presence in Europe, adding Amsterdam, Paris and Munich to its operations, which already include London and Frankfurt. Hancock said in a conference call several more cities in Europe remain attractive.
Global Crossing was considering an initial public offering for GlobalCenter, but instead chose a deal that combines equity with other agreements.
"We were anxious to realize GlobalCenter's value and this transaction did it more effectively than going public," Leo J. Hindery Jr., Global Crossing CEO and chairman and CEO of GlobalCenter, told analysts in a conference call.
Frank Moran, analysts with Jefferies & Co., said the potential scale benefits look good for Exodus.
"It clearly enhances their leadership position," Moran said. "They can sell Exodus enhanced services into the GlobalCenter customer base and therefore enhance the overall revenue opportunity, while uncovering some real operating cost savings and synergies."
But PaineWebber analyst John Hodulik downgraded Exodus to "attractive" from "buy" in the wake of the acquisition and removing the stock from PaineWebber's Analysts' Best Call list.
Hodulik wrote in a report the size of the deal, combined with integration risks and the uncertainty introduced GlobalCenter's side of the business gives him a reason to be less aggressive on the stock.
He also said the price was hefty for what GlobalCenter comes with, but added longer term the company will become the "most strategically important asset in the hosting sector."
Exodus shares, which had been staging a comeback after an initial drop, fell further after the report was released.
Companies sign network deal
The companies also signed a 10-year network services agreement and will form a joint venture in Asia to provide Web hosting and managed services.
Under the network agreement, Exodus must buy 50 percent or more of its network needs outside Asia from Global Crossing, which will become Exodus' primary network provider.
Exodus currently gets bandwidth and network services from WorldCom (WCOM: Research, Estimates), Qwest (QWST: Research, Estimates), in addition to Global Crossing.
"We will continue to have very good relationships with our other suppliers because there is a great deal of bandwidth that we have to go out and get," Hancock said.
Exodus (EXDS: Research, Estimates) will own 67 percent of the Asia joint venture, and Global Crossing will own 33 percent.
The transaction is expected to add to Exodus earnings in 2001.
Exodus Chief Financial Officer Marshall Case said the company expects substantial savings in networking, resulting in "very significant hard-dollar savings from the transaction."
Case said no layoffs are expected. The acquisition is subject to shareholder approval.
Exodus and Global Crossing, the two top Web-hosting companies, have long been rumored to be in talks. In June, talks between the two companies reportedly fell apart after shares of both companies shot up. Exodus also reportedly was looking at Digex, which WorldCom snagged when it bought Intermedia.
"Exodus stock was quite a bit lower when they were initially taking a look at GlobalCenter, and hey were also supposedly looking at Digex," Moran said. "So now, with Exodus stock performing better and its currency being more valuable, they pay the same absolute dollar amount but do it with a lot less shares."
Donaldson Lufkin & Jenrette, Goldman Sachs and Thomas Weisel Partners Merchant Banking Services advised Exodus. Morgan Stanley Dean Witter advised Global Crossing and GlobalCenter.
Global Crossing shares rose $2.25 to $32.13 in afternoon trading. 
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