GTT $2.1bn infrastructure deal in doubt as rumours hit share

GTT $2.1bn infrastructure deal in doubt as rumours hit share price

19 February 2021 | Alan Burkitt-Gray

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Shares in GTT Communications plunged 29% yesterday as rumours spread that the company is considering a pre-packaged bankruptcy filing to reduce its debt.

The company’s shares closed on Thursday night on the New York Stock Exchange at US$2.79, having opened at $3.86. The closing price values the whole company at $227 million.

If true, the rumour throws into doubt GTT’s planned sale of its infrastructure division — essentially the former Interoute — for $2.15 billion. That was announced in October 2020, just over four months ago, with an indication being given that the transaction would take six months to close.

I Squared Capital (ISQ), the company that agreed to buy the infrastructure operations, did not reply to Capacity’s request for comment.

In a filing to the Securities and Exchange Commission (SEC), the US financial regulator, GTT admitted that it was late in submitting required information to ISQ. “The sellers provided portions” of the reports by the 31 January deadline, says the SEC filing, but not the complete reports.

The sale agreement has now been amended so that GTT provides all the information by 8 March — two weeks on Monday.

HGC Global Communications, the Hong Kong carrier that is owned by ISQ, said it “has no comment or info to share of the incident”.

One prominent industry figure, speaking overnight to Capacity on the assurance of anonymity, said: “I can’t say I’m surprised. I haven’t heard anything on the rumour mill, but since the deal was announced not much info has been flowing about the deal. Even the ISQ guys have been circumspect in conversations I’ve had with them.”

Another thought that the ISQ acquisition was not threatened, but that person had other reservations: “I think ISQ deal is OK. But their problems pre and post the deal closing are looming.”

One said the pandemic is creating a problem for selling infrastructure. “The data business isn’t exactly booming right now as one example.” But this person admitted this was: “Just speculation.”

One commented: “If GTT do go Chapter 11 [bankruptcy protection], that may well put a definitive spanner in the works regarding a sale of their principal assets.”

A normally well-informed source seemed to think that ISQ was still considering the acquisition “and its detailed engineering”.

One option, of course, is that if GTT went into bankruptcy protection, ISQ would be in a position to take over the infrastructure operations in a fire sale. But so would any other potential buyer.

GTT put its infrastructure on the market a year ago, after a series of acquisitions, totalling $2.95 billion over two and a half years, led to its share price peaking on 16 March 2018 at $60.25 — nearly 22 times yesterday’s closing price.

In the October deal, ISQ planned to buy GTT’s 103,000 route-km fibre network with over 400 points of presence, covering 31 metro areas and interconnecting 103 cities across Europe and North America; three transatlantic subsea cables, including GTT Express, formerly Hibernia Express, which GTT said was “the lowest latency route between Europe and North America”; fourteen Tier 3 data centres and over 100 colocation facilities; and KPN International, its final acquisition, a carrier that used Interoute fibre.

ISQ partner Mohamed El Gazzar told Capacity in an exclusive interview, hours after the deal was announced in October 2020, that the investor had extensive plans to expand the network, reaching smaller cities.

Earlier this year Andrew Kwok, CEO of HGC Global Communications, told Capacity in an interview that “ISQ is in a pretty good mood about investing in infrastructure. We are so proud that we [HGC] were the first [carrier in ISQ’s portfolio].”