KPNQwest network set to be sold piecemeal

Bankrupt KPNQwest NV's fiber-optic network, Europe's largest, will likely be sold in pieces after a bid for the company's whole network was rejected on Friday.

The news spells trouble for customers that use KPNQwest's international services and have not yet switched to competing carriers, as even KPNQwest advised its clients to do. Also, the sale in pieces, basically dark fiber with no business, will bring in less money for creditors than a sale of the complete network and a running business, experts said.

Little-known Dutch investment group Trimoteur Holding BV said it was the only group offering to buy the whole network and had bid €60 million (US$59 million). The group of Dutch private investors, which claims to have the support of remaining KPNQwest management and employees, had reserved another €140 million to deal with creditors.

However, the group's bid was rejected Friday night, Joost van Raay, associate partner at Trimoteur of Zeist, Netherlands, told the IDG News Service on Sunday. He could not say why the bid was rejected, but suggested that ulterior motives of the involved banks could be behind the rejection.

"It has been suggested that a successful continuation of KPNQwest potentially could endanger the profitability of other players in this market. It is probably fair to believe that our continuation scenario would have created the cost-leader in this industry. For some of the creditors and banks this would indeed have an adverse effect on the potential exposure with the other players in this industry," he said.

KPNQwest in its heyday had a market capitalization of over €42 billion. The company late last year bought Ebone and GTS Central Europe, two divisions of Global TeleSystems Inc., in a deal then valued at €645 million. Still, Trimoteur claimed its offer was worth more than the combined offers for individual pieces of the KPNQwest network.

AT&T Corp. was seen as the most likely candidate to buy the entire KPNQwest fiber-optic network. However, the U.S. telecommunications giant dropped plans late last week to bid on the network because of questions about KPNQwest's bookkeeping, the company's complex legal ownership structure and a deadline imposed by French bankruptcy law, a source close to KPNQwest said on Friday.

The individual parts of the network are attracting numerous bidders. Koninklijke KPN NV, one of KPNQwest's founding companies, has bid on parts of the KPNQwest network in Germany and the Benelux (Belgium, Netherlands and Luxembourg) region. Those parts of the network are currently being kept running by KPN and a group of carriers including British Telecommunications PLC (BT), a KPN spokesman said Friday. He wouldn't provide details of the bid.

Investment bank Bear Stearns & Co. Inc., which is leading the KPNQwest sell-off, is in talks with a number of other parties interested in buying parts of KPNQwest, another source close to KPNQwest said. These include KPNQwest customers and partners that want to buy individual country networks, the transatlantic links, city rings, and the international Ebone network, the source said.

KPNQwest's liquidators told Dutch news agency ANP on Saturday that they are still in talks with parties, also on the sale of the entire network. The liquidators could not be reached for comment on Sunday.

Banks that loaned money to KPNQwest are now preparing an investigation into the company's financial statements. The consortium of banks, which includes large European and U.S. banks, suspects KPNQwest may have inflated its revenue reports, and are wondering whether the information KPNQwest provided to get an additional loan earlier this year was correct, a source close to the banks said.

The Dutch Vereniging van Effectenbezitters (association of security holders, or VEB), has also called for an investigation into the dramatic collapse of KPNQwest. Like beleaguered WorldCom Inc., KPNQwest's auditor was Arthur Andersen LLP.

AT&T had a team investigate KPNQwest's books soon after the Hoofddorp, Netherlands, company was declared bankrupt last month, according to media reports. AT&T could not be reached for comment on Friday, and had previously declined to comment on a possible purchase of KPNQwest's assets.

Analysts say AT&T could use KPNQwest's assets to increase its presence in Europe, which was reduced significantly after the dismantling earlier this year of the Concert joint venture it had with BT.

KPNQwest went bankrupt last month after a plan to sell certain assets to meet urgent financial obligations failed. The company, founded in November 1998 by KPN of The Hague, Netherlands, and Denver-based Qwest Communications International Inc., invested heavily in its network and won large customers including Microsoft Corp. and Dell Computer Corp.

KPNQwest went into a financial tailspin when demand failed to meet its expectations and its founders and banks withdrew support. The company then advised companies to find an alternative carrier.

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