GlobalCenter Gets Ready to Come Out -- Again

GlobalCenter scrapped its plans to go public back in the fall of 1997 when it was acquired by long-distance carrier Frontier. But if GlobalCenter's new leader and cable industry legend Leo Hindery has his way, the Web-hoster may finally get to throw its coming-out party as a pure-play Net company.

GlobalCenter is the second-largest Web-hosting company, right behind industry leader Exodus (EXDS Quote). Web-hosters house a corporation's Web servers, hook it up to the Internet and help it build and manage its e-commerce sites. But it's hard to size up GlobalCenter. The problem is that it's trapped inside the international fiber-optic cable builder Global Crossing (GBLX Quote), which absorbed GlobalCenter when Frontier sold out to Global Crossing in September of 1999 for $11.2 billion. But if Hindery is able to spin out GlobalCenter in the next six months, analysts suggest that it could unlock billions of dollars in shareholder value for Global Crossing investors and strengthen the hand of the Web-hoster.

"GlobalCenter is one of the crown jewels inside" Global Crossing, says Allan Harris, an analyst with Munder Capital, which is long Global Crossing. "With Hindery, they have one of the smartest minds out there who knows how to build shareholder value."

Valuing GlobalCenter

When Hindery became chairman and chief executive officer of GlobalCenter in December, the former AT&T (T Quote) executive said he hoped to take GlobalCenter public within six months. In an interview with TheStreet.com, Hindery confirmed those plans and said he was interested in growing the business in preparation for an IPO.

"I think [Global Crossing and GlobalCenter] will perform better and function better side by side than one under the other," said Hindery. "You'll probably see us do some transactions, trying to grow the business, all with the agenda of sometime in 2000 -- not late in 2000, earlier than later -- taking the company public."

Analysts say Hindery has a good shot of meeting that goal. And they agree that GlobalCenter would operate better as a publicly traded, standalone company. Matthew Janiger, an analyst with Lazard Freres who covers Global Crossing, says a GlobalCenter IPO would help sharpen the company's operational focus, retain and recruit employees, and give it currency with which to make acquisitions or investments. If GlobalCenter goes public, analysts say Global Crossing and its investors are likely to profit by holding a majority stake in the independent company.

"I think it will create value for Global Crossing," says Janiger, who maintains an outperform rating on the company, his firm's second-highest rating.

It's not clear what GlobalCenter would command on the open market, but analysts say Exodus provides a useful comparison. Exodus claims a market capitalization of more than $21 billion, compared to a $40 billion market cap for all of Global Crossing. (Not bad considering that Frontier bought GlobalCenter in an all-stock deal for just under $180 million.) Overall, GlobalCenter measures up as a strong second against Exodus. Exodus is expected to report $242 million in revenue in 1999. The Los Angeles Times reported that GlobalCenter earned $200 million. Exodus ended the year with 2,285 customers; GlobalCenter ended the third quarter with more than 500 of its own, including marquee names like Yahoo! (YHOO Quote), Viacom (VIA Quote) and the Motley Fool.

"Most ISPs suck, and GlobalCenter is the least worst we've worked with," says Dwight Gibbs, chief technology officer of the Motley Fool, which churned through four hosting companies before settling down with GlobalCenter. Says Gibbs: "Their network is better. They've got a lot of bandwidth."

Analysts agree that GlobalCenter's network is world class. Its traffic runs over an impressive chain of fiber optics that combines Global Crossing's worldwide underseas network with Frontier's U.S.-based land network. In fact, competitor Exodus has purchased capacity from Global Crossing. "They've got something good to bring multinational customers," says Harris.

Prepping for Big Show

To be sure, GlobalCenter will need to improve other parts of its business in order to keep pace with Exodus. Chairman Hindery and other executives say they want to focus on providing better customer service and more managed services such as Web-site development and monitoring, but the company has a lot to prove on these key issues. Exodus has stayed ahead of the hosting pack by striking up high-level partnerships with consulting firms like Andersen Consulting and by closing key acquisitions, such as its purchase of e-commerce testing firm KeyLabs, Internet-monitoring firm Service Metrics and professional service outfit Cohesive Technology. And though Hindery says he wants to beef up GlobalCenter through the acquisition path, the jury is still out.

"Service is a big question mark," says the Fool's Gibbs. "The idea is great. Are they going to execute? I don't know."

Management is also an issue. Munder's Harris would like to see GlobalCenter continue to deepen its executive ranks. To complement Hindery, analysts say, the company may want to bring in a more high-profile president and heads of finance and marketing. "They have the right customers to put up on a slide on the roadshow," he says. "Now they need an organizational structure to support that."

Finally, investors may want to know that Global Crossing has some of its own issues. Lazard's Janiger has not given the company its highest rating because of two factors: concerns about the integration of Frontier and decreasing margins in its wholesale voice business.

All in all, though, the hosting unit seems to be in an enviable position. If GlobalCenter is able to dress itself up over the coming months, an attractive property will be ready to make a stunning debut on a more public stage.