Exodus Closes Planned Centers; Buyout Possible

The bankruptcy filing by Exodus Communications Inc. last week didn't come as a surprise, but it cast a pall over the Web-hosting market and left more than 4,000 customers wondering if the data centers in which their Web sites are maintained would be affected. Analysts say that by filing for bankruptcy protection while it still had millions in the bank, Exodus (EXDS-Nasdaq) may be restructuring its debt as part of a planned buyout. "They must have a suitor waiting in the wings, otherwise they'd hold out a little longer," says Joel Yaffe, a Giga Information Group analyst.

Bill Krause, Exodus' new CEO, declined to comment on whether the company is in talks with a buyout partner. He says that although its goal is to remain independent, Exodus is considering a number of options, including new investors, selling assets, and selling the company. "If someone comes along with an offer that maximizes value for Exodus, we have 3,000 employees behind it," says Krause, who became CEO after Ellen Hancock left three weeks ago.

As part of its reorganization, Exodus plans to stop building 10 data centers that were under construction, none of which have customers. Its remaining 44 facilities, including major centers in Chicago, Dallas, New York, Seattle, and Santa Clara, Calif., will continue operating. To stem losses, which reached $538 million last quarter, Krause has realigned his sales force to focus on filling underutilized facilities and will ask delinquent customers to vacate. Exodus has secured $200 million in financing from GE Capital to ensure continued service during the restructuring.