Exodus Agrees To Buy Global Crossing Unit - InformationWeek

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Exodus Agrees To Buy Global Crossing Unit

In a bid to create the largest provider of Web-hosting services, Exodus Communications Inc. has agreed to buy international carrier Global Crossing Ltd.'s Global Center hosting unit for $6.5 billion in stock. The combined company would have 32 Internet data centers, a total of 2.6 million square feet, and nearly 4,000 customers worldwide in a red-hot market that is expected to reach $20 billion by 2004, according to Forrester Research.

The planned acquisition would be the latest in a flurry of big-ticket Web-hosting deals, including NTT gaining U.S. approval to buy Verio Inc. for $5.1 billion and WorldCom spending $6 billion to gain control of telco Intermedia Communications Inc.'s Digex Inc. Web-hosting unit. The combined Exodus-Global Center entity would have more hosting centers than any of its rivals, analysts say.

"On the upside, this deal would give Exodus tremendous resources through the Global Crossing centers in a booming market where scalability is critical to success," says Joel Yaffe, a senior analyst at Giga Information Group. "The challenge is to integrate the assets of the two competing companies." The deal is the latest example of consolidation in the Web-hosting market, which virtually everyone--from chipmakers to incumbent telcos--has been entering, he adds.

Another challenge for the two companies will be building a customer base for managed and complex hosting services in a market where most of the business is in low-end offerings such as co-location, a low-margin segment for providers, Yaffe notes.

Exodus and Global Crossing also disclosed deals whereby Global Crossing will resell Exodus services to its network-services customers. Exodus also signed a 10-year deal that calls for Global Crossing to become its primary provider of network transport services. Further, the two have formed a joint venture in Asia to sell Web-hosting services.

The companies expect the deal to close in the first quarter of 2001, pending regulatory approvals.

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