Global Crossing defends company's vision as it deals with massive bankruptcy
Wednesday, January 30th 2002, 12:00 am
By: News On 6
LOS ANGELES (AP) _ When AT&T needed an undersea cable to link the United States with Europe in 1997, Gary Winnick saw an opportunity and seized it.
The former Wall Street financier started Global Crossing Ltd., and within a year or so the company was selling space on its high-speed voice and data link. It raised billions of dollars and created a global fiber-optic network.
The vision propelled Winnick and many of his early investors into the realm of the super wealthy. Winnick briefly was known as the richest man in Los Angeles, with an estimated worth of $6 billion.
However, that early promise came to a crashing halt in the face of recession, rising debt, a drop in demand for high-speed data transmission and the collapse of other upstart telecom firms that soured the banking environment.
On Monday, burdened by a $12.4 billion debt, Global Crossing filed for bankruptcy protection in one of the largest corporate failures ever.
Today, lenders that include J.P. Morgan, Merrill Lynch, Citigroup and SBC Communications are scrambling to recover a fraction of their original investments.
Global Crossing spent nearly $15 billion over the last five years to build the most far-reaching and up-to-date fiber network in the world. It spans four continents and 27 countries and claims more than 100,000 customers.
Shareholders helped make Global Crossing a company worth $55 billion in its heyday, greater than General Motors at the time, but are unlikely to recoup anything, the company said. Stock that was once above $60 a share now trades for pennies.
Officials of the Bermuda-based company insist Winnick's strategy of wrapping the globe in 100,000 miles of fiber-optic cable and selling it directly to telecoms and Internet service providers was sound.
``In the last six months, it's almost a perfect storm kind of environment. Everything crashed at once,'' said Dan Cohrs, Global Crossing's chief financial officer.
Winnick, 54, has never lacked ambition or drive.
The son of a New York entrepreneur whose food services company went bankrupt in the 1960s, Winnick attended Long Island University before joining bond-trading firm Drexel Burnham Lambert.
At Drexel, he rose to become a top aide to junk bond king Michael Milken, who pleaded guilty to six counts of securities fraud in 1990 and was barred from the securities business for life. He was released from prison in 1993.
Winnick left to start his own investment firm before Drexel collapsed.
In 1998, Winnick paid what is believed to be the highest price ever for a single-family home in the United States. He spent more than $60 million for a four-acre estate in Bel Air, a tony neighborhood in Los Angeles, and then made some $30 million worth of renovations.
``Money's no fun unless you spread it around,'' he told Business Week in 2000.
Global Crossing went public in August 1998. Within seven months, the stock price hit a peak of $64. Winnick cashed in more than $600 million worth of stock over the next several years.
When the company filed for bankruptcy protection, the shares sold for about 30 cents. The 8 percent of outstanding shares Winnick still owns are worth about $10 million.
In the early days, Global Crossing attracted a distinguished set of investors, including former president George Bush and Terry McAuliffe, chairman of the Democratic National Committee.
Last year, the bloom began fading. Some investors filed suits claiming that Global Crossing and its underwriters illegally pumped up the price of the stock _ a charge the company has denied.
In the last quarter for which it reported, ended Sept. 30, Global Crossing lost $3.3 billion on revenue of $286 million as demand for high bandwidth cable plummeted still further.
Global Crossing simply never had enough customers to generate the cash needed to carry the massive debt it incurred, said Gerry Kaufhold, principal analyst with Cahners In-Stat Group/MDR, a Scottsdale, Ariz., research firm.
But he thinks a surge in broadband demand lies just around the corner, with services such as video conferencing growing at 50 percent a year.
``They ran out of money one year too soon,'' he said.