For bankrupt Web hosting pioneer Exodus Communications Inc., the last shovel of dirt has been tossed on the coffin, with their sale on Friday to Cable & Wireless PLC for $575 million and the pickup of $180 million in liabilities.
"This acquisition meets our key investment criteria of value, strategic fit, strong management and high quality products, service and customer base. We are being selective about which of Exodus assets we are aiming to acquire—something the Chapter 11 procedure facilitates," Cable & Wireless CEO Graham Wallace said in a prepared statement.
The demise of Exodus, which had been saddled with heavy debt and a steady bleeding of customers, had been long expected by customers and industry observers alike.
Exodus, of Santa Clara, Calif., was the leader of the high-end Web hosting business throughout the late 1990s. It ran into trouble in 2000, when data center technology became easier for rivals to acquire; the rivals in turn began to offer advanced managed services and lower hosting prices. Meanwhile, Exodus began to lose much of its customer base, which was composed of failing dot-coms and larger enterprises looking to cut costs. Its problems culminated this summer, with the resignation of CEO Ellen Hancock, and later with its bankruptcy filing.
C&W, of London, originally considered buying Exodus in early 2000, sources said. Instead, the company acquired smaller player Digital Island Inc., while Exodus acquired Global Crossing Holdings Ltd. The hosting industry shake-up also saw NTT Communications acquire Verio Inc., and WorldCom Inc. acquired Digex Inc. Large service organizations IBM and Electronic Data Systems Inc. also caught up to Exodus former dominance, as did telecoms like AT&T Corp. and Sprint Corp.
Now, C&W gets Exodus approximately 35 data centers and its customer list.
"Our goals with our financial reorganization have always been to continue to provide our customers with the high quality service and support they expect from Exodus, and to ensure we emerge from the reorganization process with a solution that provides Exodus customers, employees and other stakeholders with maximum value," said L. William Krause, Exodus chairman and CEO. "We, and our board, believe this combination with Cable & Wireless enables us to meet both of these goals."
Cable & Wireless officials did not make officials available for further interviews on Friday.
"I think its good for everybody," said industry analyst Dana Tardelli, of Aberdeen Group Inc., in Boston. "Why does Cable & Wireless need data center space? That on the surface looks foolish. Theyre getting all the customer contracts" as well as employees and resources.
"Cable & Wireless came to the party late but its brilliant because theyre getting everything for 10 cents on the dollar," he said. "The debtors are taking the hit on this. All the people who bet on Exodus lose, and they should be lucky that theyre getting anything."
Completion of the transaction is subject to customary closing conditions, including receipt of required regulatory approvals.