RCN Business (NASDAQ:RCNI, news, filings) has withdrawn its bid for ftgx, leaving Zayo with a clear path again. Zayo and Fibernet first announced a tentative deal at the end of May for $11.45 per share, but the terms left until mid June for a better offer to appear. RCN made what might have been such an offer at $12.50 per share just before the deadline, which seemed to indicate a bidding war might ensue.
That appears not to be the case any longer, as Fibernet will now continue to pursue the Zayo deal. It is not yet clear why RCN chose not to pursue this deal. I had thought that given the territorial overlap with RCN Metro, the company’s metro fiber division, RCN might have been able to find greater synergies. However, the likeliest case seems to be that incompatabilities became clear during discussions, and perhaps the integration of the two would not have been as easy as hoped. The other possibility is that RCN wished to get outside funding, and did not find it at a price low enough to facilitate a deal.
Zayo of course is a different case, they have less overlap both in geography and business model – for them it is an expansion moreso than a consolidation. They have had more time to look at the fit and have less to integrate, and thus are probably still comfortable with their original concept. Now that this little dustup is over, perhaps we will see Dan Caruso comment on the acquisition over on Bear on Business?
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Categories: Mergers and Acquisitions · Metro fiber
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Given RCN’s footprint, perhaps they figured out based upon a “make or buy” analysis that they can also colocate in Hudson Street (like 60 other carriers) to convert E1 to T1 and send it over any one of many long haul routes on the cheap as well.
It may be less costlier to replicate a FiberNet offering – after all its not unique or a rocket science – as opposed to the expenditure of cash to buy the company. If on a cash basis you can replicate what FiberNet has done say for 50% less, why buy?
Only RCN knows and what they know depends upon there due diligence depth and findings. RCN is not a gun and run company, so I expect they were pretty thorough.
Now conversely, it would cost a fortune to replicate RCN’s strategic fiber assets, something they know secures their future.
You always have to ask a question when it comes to an M&A transaction – do they need to sell and if you are healthy and trading at a 52-week high — at what price. Price not only on an EBITDA multiple but also strategic position, customer base, customer goodwill and in today’s world fiber optic cable platform value.
The lack of additional bidders given this has played out in the public has me coming down on the side of RCN making the right decision.
Thanks Dave for a great analysis.
Rob – do you know what multiple zayo is paying?
Fibernet Network Map
http://www.ftgx.com/downloads/fibernet_map_hi_prn_09.pdf
I wonder if the main value to Zayo is long haul connectivity to CA and FL NAP, or the NYC metro POPs? Presumably the latter with focus on serving the financial market – NYC to Chicago.
Fibernet’s long haul connectivity is just leased wavelengths and such, Zayo could buy its own for similar pricing. Fibernet’s value to Zayo would seem to come from its customer relationships, which are not so easily replaceable.
Too true.
Do you know if FiberNet’s assets in NYC is fiber or Waves?