Land Grab
Cable and Wireless claims Digital Island in $340 million deal
By Karen Brown
from the May 21, 2001 issue of Broadband Week
Content delivery network provider Digital Island Inc. is set to become the territory of Cable and Wireless plc under a merger agreement announced last week.
Industry watchers see the buyout by the international telecom giant as good move for Digital Island, which in the six months ended March 31 posted $1.3 billion in net losses. With access to Cable and Wireless' $9.9 billion funding war chest, the company can better grow its business, according to a report issued by Epoch Partners.
C&W will acquire Digital Island for approximately $340 million in the all-cash transaction. Digital Island will become a unit of Cable and Wireless and CEO Ruann Ernst will remain its top exec. The rest of Digital Island's leadership also has agreed to stay on board.
Tim Wilson, chief marketing officer at Digital Island, said the company decided to seek a buyer even before it was in serious financial trouble. It still had about five quarters of operating revenue, but was not fully funded and likely couldn't raise the necessary cash to continue on its own.
"We were doing extremely well building on our business plan when the weather storm hit," he says. "We went back to the markets and started working on this probably six months ago, looking at the fact we had plenty of cash. But we had committed to ourselves that we would never run the airplane so long that you would lose your safety factor. Because then you could spend the value that you did create and just crash into the ground."
Digital Island claims 2,600 servers distributed through 27 networks in 35 countries. In addition, it has built nine data centers for hosting services in the United States, London, Hong Kong, Frankfurt and Tokyo catering to Internet business clients.
In Cable and Wireless, Digital Island gains access to a global IP backbone with huge channel capacity, as well as the carriers business relationships and some managed hosting asset that can be folded "and help gain the economies of scale in places we never could have afforded to build out on our own," Wilson says.
The acquisition is part of a Cable and Wireless effort to refocus itself away from wireless and local phone service worldwide toward more managed data services. As such "we are going to deliver on our business plan that we already sold to the Street," Wilson says. "That's what they bought."
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