Savvis sees C&W as key addition

Savvis Communications sees its acquisition of bankrupt Cable & Wireless America as an opportunity not only to double its customer base but to accomplish something neither company has managed to do alone: turn a profit.

Savvis was one of seven companies to bid on C&W’s domestic assets in an auction facilitated by the U.S. Bankruptcy Court for the District of Delaware. C&W filed for Chapter 11 protection in December. The bidders included Gores Technologies, which had an asset purchase agreement in place before C&W’s bankruptcy filing. But Gores’ bid of $125 million came up short.

Savvis is set to pay $155 million for C&W and assume $12.5 million in liabilities. Savvis CEO Rob McCormick says the combined companies will create the largest managed IP service provider for business users.

“The two companies have enough scale to be highly profitable,” McCormick says, noting combined revenue of $700 million. “Together we’re going to have a massive IP infrastructure company that . . . is unmatched in the industry.”

But neither company is profitable today. Savvis posted more than $100 million in losses in the first three quarters of 2003.

Lack of profitability is a key reason why C&W ditched its American unit. Executives at the company said before filing for bankruptcy that C&W America was losing $1 million per day.

C&W America’s parent company decided to cut its losses in June when the company publicly stated it would exit the U.S. market. That retreat came after the company invested $2.9 billion in acquiring MCI’s Internet backbone in 1998, as well as content delivery network provider Digital Island and Web hosting provider Exodus in 2001.

While C&W had a hard time combining these assets with its legacy data business, McCormick says C&W America is a “huge opportunity for us.”

Savvis’ assets include an IP network that spans 110 cities in 45 countries, six managed data centers, 800 employees and 4,700 business customers.

The service provider takes over C&W’s entire U.S. backbone network, 15 Web hosting data centers, 1,160 employees and reportedly 5,000 business customers.

“We do not have plans to further downsize [C&W],” McCormick says. “But there will be some consolidation between the two companies in back-office functions over time.”

The company has not mapped out when or where it will make cuts.

“We do know that the savings we’re looking for come from combining things like our backbone networks and [points of presence]. We’ll go through a city-by-city analysis to figure out who has the right POP and where,” McCormick says.

Both companies also offer IP VPN services, which Savvis continues to support. Savvis’ IP VPN service runs over its “private” IP backbone, which is not part of the Internet. C&W offers two IP VPN services, one based on IP Security and the other on Multi-protocol Label Switching. Both run over C&W’s IP network, which is part of the Internet.

McCormick also says the deal is good for both Savvis and C&W customers.

“We don’t do [network] design work or upfront consulting, and [C&W] has a very established practice in those areas,” he says. “Our customers will have immediate access to their consultative services.”

Savvis also has shied away from offering collocation services because of its limited data center space. But that has been a big part of C&W’s Web hosting business.