As reported by Financial Time on March 30 2009, Pacific Crossing is going to discuss bids from NTT and Pacnet. The board of Pacific Crossing, operator of the second largest transpacific fibre optic cable, will meet this week to consider bids for the company - a transaction that would mark the end of a speculative era for infrastructure assets in the region.
NTT Communications, and Hong Kong-based Pacnet, operator of the largest regional submarine cable network, each tendered bids of $80m-$90m ahead of the auction's close on Friday in New York. Blackstone, the private equity firm, is running the sale.
Pacific Crossing, based in Bermuda, has about 20 owners, led by Strategic Value Partners of Connecticut and other hedge funds, some of which bought in at corporate valuations above $400m.
The company operates PC-1, which it describes as "the only independent, carrier-neutral transpacific cable".
The sale of Pacific Crossing to either NTT Communications or Pacnet could signal the beginning of a series of similar asset disposals by the hedge fund industry, which has faced large redemptions since the onset of the global financial crisis.
"It's a repricing of assets and represents a break in the dam for hedge funds," said a person close to the transaction. "These guys have all just been speculating on a commodity - undersea cable capacity. It was no different from betting on the price of coal or oil."
According to Hedge Fund Research, a Chicago-based consultancy, investors last year pulled out a net $155bn from hedge funds.
"This is an investment where hedge funds got ahead of themselves," said another person involved. "It is a sale of necessity."
Pacific Crossing, Blackstone, Pacnet and NTT Communications declined to comment. Strategic Value Partners, which has two seats on the company's six-member board, did not return calls for comment.
Pacific Crossing, a Global Crossing subsidiary, built PC-1 in 1999 and followed its parent into bankruptcy protection three years later. The company was managed by creditors until it emerged from Chapter 11. In 2003, Pivotal Private Equity of Phoenix, Arizona, agreed to pay $63m for Pacific Crossing but the deal fell apart.
PC-1 is the second largest transpacific cable behind Tyco Global Network built by Tyco Telecom and acquired by VSNL in May 2005 for US$130 million. It is also the fastest cable linking Asia to the US.
The outlook for the undersea cable industry remains challenging, with prices for transpacific communications down between 30 per cent and 40 per cent year on year.