Qwest Longhaul: At What Price Then?

Reuters reports that q isn’t going to get near the asking price for its longhaul network assets.  I doubt anyone is terribly surprised.  However the reports also say that bids will be incoming anyway, meaning that the game is apparently still afoot.  So, let’s forget the list price and consider this an auction, where the seller’s reserve price is not known.  How much is Qwest’s longhaul biz really worth?

In an earlier poll, I asked who would buy Qwest longhaul, and the overwhelming answer was ‘nobody’.  Let’s turn it around though and instead ask how much can they get for it:

[poll id=”23″]

Suppose we’re talking about the original fiber build plus metro loops outside the Qwest home turf, the IP network and enterprise customers that are on it, plus the declining, low margin wholesale voice business.  And let’s put a revenue figure of $1.3B in data/transport and $400M in wholesale voice (or $1.7B total), with adjusted EBITDA of, say, $250M (15% of revenue).  Let’s throw $1.5B out there.   Would anyone bid $1.5B (6xEBITDA) for an asset like that?

Actually, yes I think they would.  Level 3 Communications (NYSE:LVLT, news, filings) would do it in a heartbeat if they were able to find someone willing to help them fund it.  I think TW Telecom (NASDAQ:TWTC, news, filings) would also, they may want it less than Level 3 but their stock price is in a better position to use as currency.  I actually doubt that Verizon (NYSE:VZ, news, filings) would attempt it given the Frontier Communications (NYSE:FTR, news, filings) deal – they need all the regulatory mojo they can muster for that one.  AT&T (NYSE:T, news, filings) just doesn’t need it.

I’ve been skeptical about Qwest finding a buyer, but mainly because of the price.  If they really mean to sell it now, it’s a nice asset to the right buyer.  Once you get below the $2-3B range, things start to look quite feasible to me – especially with the credit markets apparently melting at the edges.

Now, I’m making some wild guesses about the assets and revenues of course, and I’m probably way off.  I’m really just throwing it out there to get a reaction.  So you tell me, what does this asset look like?  Revenues?  EBITDA?  Product mix?

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Categories: Internet Backbones · Mergers and Acquisitions · Old · Polls