Struggling telecom giant, SBC Communications Inc, has lined up a new buyer for Sterling Software, after another group bidding for the e-commerce unit failed to line up enough money to finance the $1bn offer.
According to Bloomberg news, SBC has entered a two-week exclusive agreement with Bain Capital Inc, to allow the Boston-based buyout firm to study Sterling’s financial statements and make a final offer for the e-commerce software business, which is also thought to be in the $1bn region. The news follows the collapse of the bid from buyout firms Silver Lake Partners and Texas Pacific Group, which were unable to line up finance for the bid. SBC had originally wanted $1.5bn for Sterling, when it put the unit up for sale in July.
The San Antonio, Texas-based telecommunications giant bought Sterling for $3.9bn at the peak of the dot.com boom in March 2000 to reduce its dependency on the increasingly commodity-like transport business, and move into the then-profitable information services sector. But the virtual collapse of this market forced SBC to write down its investment in the company by $1.8bn in the first quarter of 2002, because of the decline in the value of the acquisition. Sterling Commerce is said to be profitable and generates cash flow, but is now seen as a non-essential asset for the telecom firm.
For nearly a year now, SBC has been struggling with falling income and revenue, in a market hit hard by recession, declining pricing and regulatory battles. Indeed, in its recent third-quarter earnings, SBC chairman and CEO Edward Whitacre lashed out at government regulatory policies, saying no amount of cost-cutting can offset the effects of rules that require us to sell our lines and related services to competitors below cost.
SBC is the number-two US local telephone company, and is keen for the money it would receive from the Sterling sale to either help it reduce its debt burden or allow its wireless unit, Cingular Wireless, to pursue acquisitions. In August, SBC sold $1bn worth of bonds, and in June agreed to sell a 20% stake in Bell Canada to BCE Inc for $4bn.
There should be another $2.2bn in cash in the pipeline soon, from the 15% stake it holds in French telecom operator Cegetel SA, which is the subject of a potential bidding war between Vodafone Group Plc and Vivendi Universal SA.