GTT gets a boost from $2 billion fibre assets offer

GTT Communications has been seeking a buyer for its infrastructure business for most of this year and now looks to have a serious offer at a price that should find favour with its board and shareholders.

The company itself is keeping schtum on the matter for now, but according to Bloomberg, it is in receipt of a bid of more than US$2 billion for the assets. The group behind the offer comprises Australian investment firm Macquarie, 3i Group and Australian Super, the newswire said. It noted that GTT’s shares leapt by as much as 31% as the story leaked out.

An expansionist M&A strategy under former long-time CEO Rick Calder – who left his post this summer, incidentally; the company is still seeking a permanent replacement – put GTT in possession of the assets in question as recently as two years ago.

GTT acquired fibre network operator Hibernia Networks in a $590 million cash-and-stock transaction in early 2017 and followed it up with the €1.9 billion ($2.3 billion) cash purchase of Interoute in May 2018. The pan-European fibre assets, subsea transatlantic fibre, and data centre infrastructure that GTT acquired through those two deal now form its Infrastructure Division.

In its full-year report for 2019 GTT said it was in the process of separating out the income statement and assets and liabilities that would be included in the divestiture of that division. It noted that it expects the business to generate $370 million-$390 million in revenues and EBITDA of $160 million-$180 million.

Financials for the company as a whole do not make particularly happy reading. It reported a revenue decline of almost 6% to $424.7 million in Q1 2020, its most recent publication, while its net loss widened to $83.3 million. And it really needs to sell that infrastructure unit to shore up its debt position.

According to Fitch Ratings, GTT’s leverage was over 8x as of Q1. It recently delayed publication of its Q2 numbers, citing issues linked to the way it recorded the cost of its telecoms services; an accounting problem, essentially. It led to Fitch warning that GTT could have its credit rating downgraded in future.

The firm already has a Negative rating, due to uncertainty stemming from the coronavirus pandemic and the lack of movement on its infrastructure sales. “The asset sales are critical to optimize the company’s capital structure as the proceeds are expected to reduce debt and thus improve leverage metrics significantly,” the firm said, adding: “GTT has indicated that it continues to receive significant interest from multiple parties and is progressing well on the sale process.”

The latest report on the sale seems to back up that statement, although Bloomberg added the usual caveats that the deal talks could still fall through.

That would be an outcome GTT could do without, especially considering that the $2 billion figure shared by the newswire is somewhat higher than some of the numbers that have been bandied about while GTT has been seeking a buyer. GTT needs to push this deal through.

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