C&W buys Digital Island for $340 million

British telecom company Cable & Wireless has agreed to buy Internet hosting and streaming media company Digital Island for $340 million in an all-cash deal, including $45 million of Digital Island debt, the companies announced Monday.

C&W offered $3.40 per share for Digital Island common stock, 8.7% more than its $3.13 value at market's close Friday. The boards of directors for both companies have approved the deal, according to the statement. The tender offer is subject to customary terms and conditions, including U.S. regulatory approval and the tender of a majority of Digital Island's outstanding shares of common stock.

Digital Island provides Web hosting, managed Internet services and content delivery services for corporate customers like Cisco and E-Trade. C&W is buying the company to beef up its managed services offerings and to strengthen its portfolio of data centers in the U.S., according to the statement.

Digital Island's share price fell dramatically over the course of last year's economic downturn. The company's share value peaked in December of 1999 at around $150 a share, giving it a market capitalization of $12 billion. One year ago, Digital Island's market value was down to $2.2 billion.

Both companies have suffered setbacks in recent months. C&W amassed a war chest of $9.9 billion through divestitures, but announced job cuts of 4,000 employees in March resulting from the weakening global market. Digital Island posted losses of $1.1 billion last quarter, and announced it would lay off over 200 of its staff of 940.

Cable & Wireless, in London, is at www.cwplc.com/

Digital Island, based in San Francisco, is at www.digitalisland.com/

The IDG News Service is a Network World affiliate.