With Top Leaders and Alliances, Worldwide Looks for Solid IPO - TheStreet

VANCOUVER -- Canadians love a good coup, especially when it comes at the expense of Uncle Sam.

When the

Vancouver Canucks

lured hockey legend

Mark Messier

away from the bright lights of New York in 1997, national pride swelled from Newfoundland to British Columbia. Fans reeling from Canada's decline in the sport began harboring notions of the

Stanley Cup

once again -- and Vancouverites still hold on to the dream, despite three losing seasons with their well-paid captain.

A similar scenario shaped up this past December, when

Microsoft

(MSFT) - Get Report

Chief Financial Officer Greg Maffei decided to trek north, leaving Seattle in the mist to head a Vancouver start-up,

Worldwide Fiber

. The privately held outfit currently is controlled by construction giant

Ledcor Industries

.

The move prompted folks north of the border -- gearing up for a lucrative public offering -- once again to start talking up the prospects of a big winner.

Thanks to the Maffei signing, Canadians and Americans alike are taking notice of the young networking firm, which has embarked on an aggressive campaign to lay a comprehensive network of fiber-optic cable across North America, as well as a trans-Atlantic network connecting Boston and Halifax with Liverpool and Dublin.

Maffei's penchant for dealmaking during his Microsoft heyday has obviously rubbed off on his new firm. The company has cut deals with such heavy-hitters as

Qwest Communications

(Q)

, Sweden's

Telia AB

and

Telewest Communications

(TWSTY)

. All of this has helped set the stage for a widely anticipated initial public offering slated for April 3. The IPO, underwritten by a syndicate led by

Goldman Sachs

, is expected to raise $862 million. The company's Class A shares will trade on both the

Nasdaq

and the

Toronto Stock Exchange

.

Zealous investors, especially those on the colder side of the 49th parallel, continue to salivate over Worldwide Fiber's market debut. With solid financing, key alliances and outstanding leadership, Canada's hottest private company seems almost too good to be true. While the IPO is expected to soar out of the gates, however, questions are emerging about Worldwide's role in the fiber-optic and telecommunications industry and about the significant competition it will face.

There seems to be no shortage of cashed-up and rapidly growing competitors in the field, including

Level 3

(LVLT)

and

Global Crossing

(GBLX)

. As reported in a

story last month by

TheStreet.com's

Scott Moritz

, investors have gravitated toward those companies perceived as being further along in the building of global networks. And while

Williams Communications

(WCG) - Get Report

, a company better associated with domestic networks, has watched its stock make substantial gains during the past year, it hasn't matched the growth of the more globally oriented Level 3 and Global Crossing.

Worldwide Fiber, which declined to make executives available for this story, would obviously like to live up to its name in garnering an international reputation. Playing catch-up with a company like Global Crossing, however, won't be easy. While Worldwide focuses on establishing a presence in the key market of Europe, Global is tackling the next phase of overseas growth: Asia. Entering the growing telecom markets of Hong Kong, China, Taiwan, Singapore and Japan will allow Global Crossing to build crucial brand and market share -- at the expense of its Atlantic-centric competitors -- while raising the bar on Wall Street.

According to Tim Stronge, director of research with the Washington-based telecommunications consulting firm

TeleGeography

, Worldwide Fiber could also face competition from one of its current suppliers,

Tyco International

(TYC)

. The company recently announced that it's going to build and operate its own underseas, fiber-optic network through its

Tyco Submarine Systems

subsidiary.

And if the aforementioned lineup of fiber-optic heavyweights isn't enough, Worldwide Fiber also has to face a growing concern among all players: the possibility of oversupply in the industry. "My big fear is that there would be a capacity glut at some point in the future," says Stronge. "The prices have been falling rapidly, and continue to do so. It's no longer a high-margin business."

Other industry watchers are less concerned with the issue. According to Nick Strube, a Toronto-based telecommunications analyst with

Canaccord Capital

, the barriers to entry in laying down an underseas fiber-optic network (as opposed to a continental network) mean that Worldwide Fiber will always enjoy a strong demand for its products. (Canaccord is not part of the Worldwide Fiber underwriting syndicate.)

He also likes the sector as a whole, and believes there is room for upstarts such as Worldwide Fiber to grow within the industry. "The idea here is that once you give people bandwidth, they will demand more," he says.

Both Strube and Stronge discount the worries associated with the company's relative inexperience in the telecommunications field. Potential investors in Worldwide Fiber need look no further than the Global Crossing story to alleviate their fears.

"They had a really good idea," Stronge says of Global Crossing. "They had financing for it, and they got in touch with the right people. That's an example of a corporation coming from nowhere and doing very well."

It's a story Worldwide Fiber will want to emulate as soon as it can. Because if the company's investors get snarly in the future, then chances are its newly minted CEO will, too. Maffei, after all, now owns 8% of the company.

Hockey hero Messier may have left behind the memories of a Stanley Cup and a Madonna courtship in New York, but that pales in comparison with what Maffei left behind in Seattle: millions of dollars in stock options and the day-to-day camaraderie of a powerful fellow named Bill.

His situation is further proof that the stakes, as well as the expectations, are very high indeed for Worldwide Fiber.

Derek Moscato is a freelance financial journalist in Vancouver. At the time of publication he had no positions in any of the securities mentioned, although holdings can change at any time.