May 14, 2001 : Cable & Wireless Buys Digital Island

📅 May 14, 2001 - Cable & Wireless (cw.com), one of the largest providers of global IP infrastructure, and Digital Island Inc. (digitalisland.com), the struggling US-based Web hosting firm, announced on Monday that they have entered into a merger agreement that will see Cable & Wireless buy all of the outstanding shares of Digital Island.
The all cash transaction will take place at a price of $3.40 per share of Digital Island common stock, a premium of 8.7 percent to Friday's closing price of $3.13. The transaction, unanimously approved by both companies? boards of directors, values Digital Island at approximately $340 million, including a net debt of about $49 million.
Cable & Wireless says the acquisition of Digital Island will accelerate the implementation of C&W's data and IP strategy in the area of value added services. The company says the combined assets of the two businesses will be able to provide customers with a complete range of IP and data transport, hosting, content delivery and other value added services to customers in the United States, Europe and Japan.
The acquisition will work well for both companies, says Cable & Wireless, by reducing Digital Island's network costs, and capital expenditures. The IP company expects the acquisition of Digital Island to dilute the earnings of Cable & Wireless in the near term, but expects it to build by the end of the third year. Cable & Wireless also expects to benefit in the medium term from the deal through improved revenue growth.
Digital Island had traded as high as $148 in December of 1999, before suffering badly from last year's dot-com crash. Last week, the company announced a second quarter loss of $1.19 billion, and says it plans to reduce its workforce of approximately 850 by one fifth. The company expects its earnings for the year ending September 30, 2001 to be in the range of $140 million to $145 million. About 70 percent of those revenues come from large corporate customers, including E*TRADE, UBS Warburg, FT.com, SONY, Cisco and Microsoft.
Cable & Wireless says that the deal, and the combination of Digital Island's innovation with the world class IP network and financial backing of Cable & Wireless will give renewed momentum to the Web hosting company. The combined business is expected to have a leading position is providing services for e-businesses, supporting more than $1 billion per day of transactions for Global 500 customers
The announcement of the deal comes just before Cable & Wireless's annual results are announced on Wednesday, an event where shareholders are expected to be looking for the company's plans for its six billion pound cash pile.
Greenhill & Co. and Merril Lynch advised Cable & Wireless in the deal, and Credit Swisse First Boston acted for Digital Island.