Business News - Viatel To Buy Destia in Estimated $1 Billion Stock Swap

Posted: 10/1999

Viatel To Buy Destia in Estimated $1 Billion
Stock Swap
By Ken Branson

Viatel Inc., New York, intends to buy Destia Communications Inc., Paramus, N.J., in a
stock swap valued at approximately $1 billion.

The two companies are competitive long distance carriers active in Europe, but they do
different things in different countries. Viatel is building an 8,700 route-kilometer, $700
million network of fiber optic rings linking 40 major European cities. Destia, which began
life as seller of prepaid phone cards called EconoPhone, owns its switches, but has leased
capacity in North America and Europe to carry its business. Destia recently launched a
prepaid, web-based phone service in Britain and Western Europe, and also offers Internet
access in some countries.

Alfred West, Destia’s founder and CEO, will become a vice chairman of Viatel when the
acquisition closes.

Alan Levy, president and chief operating officer of Destia, will become chief operating
officer of Viatel when the acquisition closes. Levy was chief financial officer at Viatel
from 1993 to 1996, and was one of the authors of Viatel’s European strategy. He now will
be responsible for carrying out that strategy.

Viatel’s leaders have always said they prefer to own, rather than lease, both their
switches and transmission facilities. CEO Michael J. Mahoney also has said he wants
two-thirds of his company’s revenues eventually to come from retail services to small and
medium-sized businesses, and one-third from wholesale services. Destia would appear to
give Viatel what Mahoney has said it needs.

First, Destia’s target customers have been small and medium-sized businesses, to which
they have sold prepaid, calling card, domestic and international long distance, and
toll-free services. Unlike Viatel, the main customer base of which has been in continental
Europe, the bulk of Destia’s customers are in Britain, North America and
Switzerland–places Viatel’s presence has been minimal.

Second, Destia’s own wholesale/retail mix is close to Viatel’s goal. Through
indefeasible rights of use (IRUs), Destia controls capacity on broadband networks under
and on both sides of the Atlantic Ocean. Wholesale revenues from that capacity amounted to
30 percent of Destia’s total revenues in 1998. Small and medium-sized businesses are the
very heart of Destia’s retail customer base, to which Destia sells calling card, prepaid,
long distance (domestic and international), toll-free and Internet access services.

Destia went public rather quietly in May, offering 6.5 million shares, or about a third
of the company, to the public at $10 a share, climbing steadily to just above $15, then
sliding back down below $10. Recently, Destia’s shares have begun to climb gently, aided
by takeover rumors. On the day of the acquisition announcement, within an hour of the
market’s opening, Destia’s shares were trading above $16 on the NASDAQ.