Something is brewing at Global Crossing
Perhaps traders expect good news from the struggling carrier. Mexican tycoon Carlos Slim Helu has been snapping up Global Crossing stock for months. Slim now owns just under 10% of Global Crossing and has the green light from utility regulators to up his stake to 20%.
Mr. Slim has a Midas touch. Remember, it was Slim who rescued the Internet service provider Prodigy back in 1997. He controls Telmex, Mexico's leading telco, a sizable chunk of MCI, and a slice of U.S. Bell operator SBC Communications
It's mighty tempting to chase them into the high-stakes action. But don't. Global Crossing remains, at best, a gamble, with more than its fair share of risk. There are plenty of good reasons to steer clear of the stock.
For one, the global market for bandwidth continues to deteriorate. Pricing has plummeted by 40-50% per year for the last three years. To keep revenues flat, carriers need to double their traffic each year. Wholesale bandwidth carriers such as Level 3
Then there's Global Crossing's ugly financial state. It is operating-cash-flow negative and hasn't given investors any sense of when that will end. It doesn't help that Global Crossing may have to restate its financial results for the past two years. Restatements tend to make companies look worse, not better. Since the company emerged from bankruptcy earlier this year, its position has gotten worse.
It's the information deficit that should give investors reason to recoil. When it comes to Slim's plans for Global Crossing, there is almost nothing to go on. What's he up to? What does he know that we don't? How does he plan to turn around a company that by all appearances continues to veer toward disaster? Until more information is offered, that billion-dollar question is probably best left to the billionaires.
Want to read more about Global Crossing or Level 3? Check out the following two articles from Bill Mann:
Fool contributor Ben McClure doesn't own shares of any companies mentioned in this article.