Under terms of the deal, BT is offering $2.06 in cash per share to Infonet stockholders. The deal is subject to shareholder approval and regulatory clearances, and is expected to be completed in the first half of 2005. According to BT, 97% of Infonet’s shareholders have already backed the deal.
BT said that excluding Infonet’s net cash balance of 210 million pounds ($389.5 million), the aggregate value of the deal comes down to 310 million pounds ($575 million). This represents a premium of 23% to the average price of Infonet shares over the past three months. BT believes that eliminating network overlaps and increasing purchasing power in buying extra capacity will result in cash synergies of $150 million in the third year following the acquisition.
Infonet’s shareholders includes the largest Dutch telecom operator, Royal KPN, Swedish-Finnish TeliaSonera, Spain’s Telefonica, Swisscom, KDDI Corp of Japan, and Telstra of Australia.
El Segundo, California-based Infonet provides voice and data network services, and in full-year 2004 reduced its net loss by over $150 million to $66.6 million, while total revenue fell 5% to $622 million. Its client base consists of about 1,800 multinational customers including the US government, Nestle, Hewlett-Packard, Siemens, Nokia, IBM, and DHL.
The acquisition signals a strategy change by BT, after its previous forays into the US and other foreign market proved to be disastrous, and left the UK telecoms outfit crippled with debt.
In 2001 BT replaced both its CEO and CFO, raised 5.9 billion pounds ($10.94 billion) through a rights issue, spun off its mobile division mmO2, unwound its Concert joint venture, and sold its businesses in Japan and Spain. These transactions allowed it to slash its debt burden to 13.7 billion pounds ($25.41 billion) from 27.9 billion ($51.75 billion) in 2001.
The Infonet deal signals the resumption of BT’s drive to become a global force in telecom services and represents a surprise return to the US market for BT. BT has been trying to reinvent itself as a credible services provider after struggling with falling revenues at its core fixed-line business, and no mobile operation to act as a growth engine.
The acquisition of Infonet marks a significant step forward in BT’s strategy of addressing the IT and networking services needs of multi-site companies and organizations, BT said in a statement. It will greatly extend BT’s global reach and will deepen the company’s presence in North America and Asia Pacific.
BT expects Infonet’s blue-chip customers to strengthen its BT Global Services arm, which is a vital part of its strategy to boost its so-called new wave revenues.
Much of BT Global Services’ work is providing telecoms services for companies within each country it operates. Infonet, on the other hand, provides secure data networks linking companies between countries. The deal will therefore give BT global access to some of world’s largest companies, especially in North America and Asia Pacific.
A spokesperson for BT confirmed that job losses are on the cards, although at this stage it is not known how many of the 1,100 people who work for Infonet, and the 8,000 who work for BT Global Services, might be affected.
