Global Crossing is an under-followed business in a hated industry that currently offers approximately 100% upside. GLBC came out of bankruptcy in 2004 and has shed several non-core assets as well as successfully trimmed down its cost structure. It has a solid network presence in the US, Europe and Latin America and has recently expanded the depth of its UK and Latin American network with the Impsat and Fibernet acquisitions, respectively. GLBCs global fiber optic network has suffered from years of over-capacity while current industry dynamics are getting increasingly favorable.

We have a positive view on the fiber optic industry as the effects of consolidation (ie. reduced supply and more rationale behavior) and accelerating bandwidth demand have together translated into improved pricing/traffic fundamentals for network operators. Over the past few years, there has been significant consolidation and limited capacity added on the supply side. At the same time, we are seeing a huge increase in bandwidth requirements on the demand side and this demand trend is only accelerating with streaming video online, IPTV, online gaming and wireless. Pricing has improved significantly and is beginning to stabilize while services provided and traffic volumes are growing at over 50% per year.

Our research indicates that GLBC has a very unique asset that it spent $10-12B developing (pre the recent acquisitions) while the market is currently valuing those assets at less than 25% of reproduction value. This network positions it well to benefit from the improving industry fundamentals. At the current valuation, we are getting GLBCs pre-acquisition Latin America, US and European (ex. UK) network business for nothing and are paying a cheap price for the rest of their business.

Global Crossing focuses on selling global IP, voice and data services to enterprises with offices in several countries around the world. They compete primarily with BT, AT&T and Verizon for global connectivity, but AT&T and Verizon don’t own the network in many places around the world, positioning GLBC most competitively against BT for global connectivity business. GLBC also targets the Fortune 2000 that are not getting the proper focus from companies like AT&T and Verizon. GLBC faced big headwinds when emerging from bankruptcy as many customers were wary of accepting services from a company that had liquidity problems. Our research indicates that customers are recognizing that GLBC is here to stay and has a solid global footprint which we expect will lead to increasing customer wins in the next 1-2 years.

Valuation is extremely compelling as the downside seems pretty limited and the upside could be much higher than indicated above if GLBC continues to gain traction with new customers and industry fundamentals continue to improve. GLBC currently trades at approximately 8x 2007E EBITDA, but that EBITDA is severely depressed. That 2007E EBITDA is based on:

1. The ROW (Rest of World) business making no money while that business should generate over $800m in top line in 2007 growing at a run rate of 20%+ and
2. Depressed margins in their core UK business.

If GLBC can generate margins in line with its current UK business in the ROW business, that would imply the overall business is trading at 4.5x EBITDA. We believe that it is very possible that GLBC could generate this profitability in the ROW business within the next 2-3 years as well as improving its margins in the UK and growing top line at 15%. We believe that 4.5x normalized EBITDA for a business that can grow EBITDA at 15% with minimal maintenance capex requirements is very cheap. At current prices, we believe there is at least 100% upside over the next 2-3 years.

Another way to look at valuation is the following:

CapEx as % of Sales: 8%

Pre-Tax FCF: $81m

FCF Multiple: 11x

UK EV: $891m

Impsat/Fibernet 2006E EBITDA: $100m

CapEx/Sales: 8%

Pre-Tax FCF: $92m

FCF Multiple: 10x

EV of Impsat/Fibernet (companies acquired): $920

Wholesale 2006E EBITDA: $72m

EBITDA Multiple: 5x

Wholesale EV: $360

Total Value for the business (excluding ROW business) = $2.171B

Current EV of GLBC: $2.2B

Implied EV for the ROW business = $30m

2006E Revenues for the ROW business: $785m

Implied EV/Sales for the ROW business = 4%

Many network business like Level 3 or Time Warner Telecom trade at approximately 3-4x EV/Sales. We believe that GLBCs ROW business should trade at least 2x EV/Sales which implies approximately $1.5b in additional value or approximately 100% upside. If we are right about our predictions for the supply/demand dynamics of the industry, there could be additional upside.

There are many opportunities for GLBC to continue to create additional value through acquisitions as well. In this business, largely a fixed cost business with enormous economies of scale, if you own a network back bone, then there are huge cost savings from buying a company that has a network that overlaps with yours and just putting all the traffic onto one network. There are also large cost synergies in buying enterprise network providers and moving their back bone traffic onto your network as well revenue synergies in upselling increased services to their customers and getting additional customers given the improved end to end solution. There are many opportunities in this business to find small, under-capitalized network businesses all around the world that make very valuable acquisition targets and we expect that GLBC will monetize this opportunity as will other network businesses which will continue the industry consolidation effort.

Catalysts:

Improving industry fundamentals

Continued customer wins

Successful Integration of Acquisitions