Global Crossing Totally Explained

Everything about Global Crossing totally explained

Global Crossing Limited is a telecommunications company that provides computer networking services worldwide. It maintains a large backbone and offers transit and peering links, VPN, leased lines, audio and video conferencing, long distance telephone, managed services, dialup, colocation and VoIP, to customers ranging from individuals to large enterprises and to other carriers. The main emphases are on higher margin layered services like managed services and VoIP with leased lines. Global Crossing is a tier 1 carrier. The company is legally domiciled in Bermuda, although its administrative headquarters are in New Jersey.

Founding and early growth

Global Crossing was founded by Gary Winnick and three business associates in 1997 through Pacific Capital Group, Winnick's personal venture group, which had experienced mixed results in its twelve-year history. From 1997 until 2002, Winnick held the title of chairman; Lodwrick Cook, former CEO of Atlantic Richfield Company (ARCO), was hired by Winnick in 1998 as co-chairman. John Scanlon became Global Crossing's first chief executive officer the same year. In what would become a trend with Global Crossing's chief executives, Scanlon's leadership was short-lived, and in February of 1999, he was replaced by Robert Annunziata, who had resigned his position as president of AT&T's business services group to "build a company from start to finish." Annunziata oversaw the rapid expansion of the company, including the purchase of Frontier Corp. at a cost of $11.2 billion and the $850 million purchase of Global Marine. After only a year though, in March, 2000, Annunziata resigned. During his time as CEO, Global Crossing had gone from a medium-sized company of about 150 employees to an international giant with over 14,000 employees. Taking over as CEO, Leo Hindery, another AT&T executive, had joined the company a few months earlier as head of its webhosting division, GlobalCenter. Hindery took the helm at a critical turning point for the company. In March, the month Hindery assumed command, Global Crossing's stock had reached a high of $61 per share. A month later, however, the stock price had fallen to just $25 a share. The company's filing for an offering of $2.5 billion in common and convertible preferred shares was cut in half. Many of the original investors bailed out at that time as well, cashing out most or all of their holdings for astounding gains. Gary Winnick, who continued with his company, himself made another $260 million at the April, 2000 stock offering. CEO Hindery projected the company would be cash-flow positive by early 2002, but two months later, in October, 2000, he quit, submitting his resignation after just seven months with the company. This took place after the sale of the GlobalCenter division to Exodus Communications, in a deal in which Hindery made $251 million. He was replaced by Thomas Casey, a forty-eight year old lawyer who came to Global Crossing from Merrill Lynch, where he was co-head of the global telecom investment banking group. Prior to that time, Casey had worked as an attorney for the Federal Communications Commission and the Department of Justice. Reports by individuals close to the company to the media suggested conflicts and power-struggles between Mr. Winnick and CEOs Annunziata and Hindery.
   Global Crossing was generating a great deal of publicity through things like its NASCAR racing sponsorship and the rescue attempt of a Russian submarine, but its business triumphs were lacking. By early 2001, emerging telecommunications carriers and online businesses - two groups Global Crossing had been relying on to build traffic on its network - were fading fast. Walt Disney withdrew from its money-losing site Go.com and eToys announced it was running out of cash. Additionally, the parade of telecom companies filing bankruptcy began that year, including Global Crossing customers Northpoint Communications Group and GST Telecommunications. Nevertheless, CEO Casey projected continued financial growth with targets at thirty percent in 2001, the year the company's vice president of finance, Roy Olofson, claimed later he'd voiced concerns about alleged "last-minute swap transactions" with customers from whom Global Crossing also purchased services. The deals noted by Olofson included a $100 million exchange of capacity with Qwest and a $200 million sale to 360Networks, from whom Global Crossing purchased $150 million of capacity. Global Crossing claimed Olofson's allegations were false, and that he'd threatened to file a lawsuit against the company if he wasn't paid a substantial amount of money. The company stated that its financial and reporting items had been reviewed both internally and by the company's auditor, Arthur Andersen.
   In June, 2001, Global Crossing completed its core network, spanning four continents, 27 countries and 200 major cities. The same month, it completed the sale of its local telephone-company business on June 29. Casey's confidence in the company's strength seemingly maintained that of many investment bankers and investors. Third-quarter filings for 2001, however, were considered disappointing, and Global Crossing announced plans to dispose of Global Marine. It was announced that Asia Global Crossing, of which Global Crossing owned fifty-nine percent, had entered discussions to merge in October 2001, after John Legere, Asia's CEO, became head of both companies. The merger discussions ended in November 2001 and Legere was replaced as Asia Global Crossing CEO in January 2002 and was removed from the Asia Global Crossing board in April 2002.
   By this time, the finance world was losing confidence rapidly, and Global Crossing's stock price continued to fall, hitting five dollars a share by November, 2001. On December 20, it was revealed that Asia Global Crossing had requested $400 million from a credit line granted at its spinoff in 2000 by Global Crossing. Global Crossing refused to fund the line and a month later, in January, 2002, the company filed for Chapter 11 bankruptcy protection and its assets were ultimately sold to Asia Netcom, a subsidiary of China Netcom. At the same time, a letter of intent was filed by Global Crossing to sell control of the company, seventy-nine percent, to a joint venture between Hong Kong-based Hutchison Whampoa and Singapore Technologies Telemedia. Global Crossing's bankruptcy filing listed total assets of $22.4 billion and debts amounting to $12.4 billion. If ranked by assets, Global Crossing's bankruptcy is the seventh largest filing in American history.

Corporate and executive spending

Global Crossing's rapid rise and fall attracted tremendous attention and it was quickly revealed that the company, particularly its executives, lavishly spent money on "themselves and their digs." Four of Global Crossing's CEOs received at least $23 million in personal loans from the company, some of which were forgiven entirely even when bankruptcy was becoming a greater possibility. These same CEOs also received over $13.5 million in after-tax signing bonuses along with lucrative stock options. Between 1998 and 2001, Winnick sold approximately $420 million in Global Crossing stock. Other executives with the company sold an additional $900 million, totaling $1.3 billion, an amount equal to the Enron inside sales for the same period. Pacific Capital Group, Winnick's investment company, was the owner of Global Crossing's palatial office space in Beverly Hills, California. PCG had paid $41.5 million for the office space in 1998 and spent an additional $9 million on renovations. Global Crossing, its newest "tenant" paid rent to PCG of $400,000 a month. Winnick's personal office, called the "Oval Office," contained furniture priced at over $1 million, and hanging outside the entrance to the office was a painting by Pablo Picasso, purchased for $15 million. The Beverly Hills office wasn't the only extravagant office space - Global Crossing's office in New York City, located at 88 Pine Street, underwent an extensive renovation. David Walsh, founder of IXNet (which Global Crossing purchased in February, 2000 for $3.4 billion), headed the Manhattan office and was acting Chief Operating Officer. Walsh oversaw the installation of a custom-made lighting system to emulate fiber optic strands with neon lighting. A staircase linking the 29th and 30th floors, installed but then changed at a cost of $250,000, was acknowledged openly by Walsh.
   Additionally, Global Crossing operated five corporate jets, including a Boeing 737, a Challenger, a Gulfstream, an Astra and a seven-seater, when, according to one former executive, it needed two jets maximum. Employees reported reckless spending in other areas as well, including the purchase of new accounting software costing $150 million when accounting department staff indicated the current software didn't need updating. It was later discovered the software was never even installed.
   Gary Winnick's spending was criticized and he was condemned by many employees, many of whom had losses beyond their jobs when the company filed bankruptcy. Even as the company's financial situation went from questionable to grim, work continued on Winnick's Bel Air mansion, valued at $92 million and considered the most expensive home purchased in Los Angeles (and by some reports, American) history. Winnick purchased the 30,000 square foot mansion on 9 acres, known as Casa Encantada, in September 2000 from David Murdock. Winnick paid $66 million of the purchase price in cash. After the acquisition, much of the house was renovated, new mechanical and electrical systems were completely updated and a service wing was converted into a studio for his wife Karen Winnick. The estate includes tennis courts, a swimming pool, pool house, and priceless views of Los Angeles. Prior to Murdock, the original house had been owned by Conrad Hilton, founder of Hilton Hotels. Winnick stated publicly and accurately that the 64-year old estate was being "updated and freshened."
   With his wife Karen, a children's book author and co-founder of the Gary & Karen Winnick Foundation, Gary Winnick gave extensively to charity. To the Simon Wiesenthal Center, a Jewish center in Los Angeles committed to fighting prejudice and hate crimes, Winnick pledged $40 million for the construction of a branch to be located in Jerusalem that will be called the Winnick Center for Tolerance. Another Jewish center, the Skirball Center, received a $5 million donation, and the Winnick Foundation pledged $3 million to a Chabad girls' school in West Los Angeles. A total of $100 million was given to other charities, including the Los Angeles Zoo and the Los Angeles Public Library. Hutchison Whampoa withdrew from its planned purchase of Global Crossing after the Committee on Foreign Investment in the United States made it clear that the purchase wouldn't be approved with Hutchison as a purchaser. Singapore Technologies Telemedia acted alone and purchased Global Crossing for $750 million, buying it out of bankruptcy and terminating Gary Winnick's control of the company. Investigations were conducted by the SEC and resulted in former CEO Thomas Casey, former chief financial officer Dan Cohrs, and former president of finance, Joseph Perrone receiving fines of $100,000 each. The SEC closed its investigation of Gary Winnick, who received no punitive action or fines.
   In 2004, Global Crossing settled a class action lawsuit over the losses the employees incurred from their pensions and 401Ks. Investors and former employees received $325 million in the settlement. Gary Winnick, the founder and former chairman of Global Crossing contributed $30 million to the settlement. Simpson Thacher & Bartlett, Global Crossing's law firm, paid $19.5 million, even though the firm wasn't named as a defendant. The $30 million from Mr. Winnick is in addition to a $25 million fund he set up in December 2002 for Global Crossing employees who lost money investing in the retirement plan. Under the terms of the settlement, investors who bought Global Crossing securities beginning in 1999 received $245 million and former employees received $80 million. This amount was only a fraction of the losses the former employees incurred on their retirement plans. Mr. Winnick made $734 million selling his shares in Global Crossing before it collapsed. Some defendants named in the lawsuit didn't participate in the settlement and will continue to litigate the case. Among them are Arthur Andersen, Global Crossing's auditor; Salomon Smith Barney, J.P. Morgan, Goldman Sachs and other investment banks that sold Global Crossing securities; and Jack B. Grubman, the former Salomon Smith Barney telecommunications analyst. They have maintained that they did nothing wrong in their work related to Global Crossing.

Political contributions

Winnick helped Democratic National Committee chairman Terry McAuliffe turn a $100,000 stock investment into $18,000,000. Winnick later gave a million dollars to President Bill Clinton's presidential library.
   In 1998, former U.S. president George H. W. Bush gave a speech in Tokyo on behalf of Global Crossing, for which he was compensated with $50,000 of Global Crossing stock which he sold in 1999 and 2000 for more than $4.5 million.
   Global Crossing's political contributions tended to be fairly evenly distributed between Republican and Democratic parties, with co-chairman Winnick tending to favor Democrats and co-chairman Cook favoring Republicans. In 2000, the company gave $250,000 each to the Republican and Democratic Conventions. In 1999, the company hired former assistant attorney general Anne Bingaman, wife of Democratic New Mexico Senator Jeff Bingaman, as a Washington lobbyist, paying her $2.5 million between January and June of 1999 to try to block licensing of an AT&T, MCI, and Sprint consortium cable from the U.S. to Japan. The large bicameral donations have been suggested to be a reason why investigations against the company's upper management didn't result in any criminal charges, despite the size of the bankruptcy and the large amount of circumstantial evidence that some sort of malfeasance had occurred.
   It has remained a major name in the business, and it also became a corporate partner of various governmental and academic networks, such as the UK's Immigration and Nationality Directorate, the U.S. government, European academic networks GEANT, SURFnet and others, the US Internet2 and the Canadian CA*Net.
   In late 2006, Global Crossing announced acquisitions of Fibernet, a provider of private network services in the UK, and Impsat, an Internet provider in South America.
   Since emerging from bankruptcy, the company has attempted to re-focus its business around enterprise customers and de-emphasise its historic wholesale business, with some limited success. A new strategy, articulated in October 2004, has enabled it to turn around its performance in its core business while improving margins. It secured additional funding from its parent STT in December 2004 and anticipates becoming cash flow positive by the end of 2006, although at present it continues to burn cash at a prodigious rate.

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