While the news of ABRY's proposed purchase of RCN Business (NASDAQ:RCNI, news, filings) overshadows all else and led to the canceling of their investor call, the broadband and metro fiber company still reported earnings today. As always, I look mostly at the RCN Metro segment, which delivers thick pipes to the wholesale bandiwdth and data intensive enterprise segment.
Revenues there were $49M, up sequentially as usual and roughly inline with my expectations. EBITDA of $16.9M was also up inline, and EBITDA margins rose to 34.6%. Overall, nothing surprising there, just solid numbers. While guidance wasn't given, I would estimate 2010 numbers to be in the $210M+ range with 35% EBITDA margins - and they'll likely do better than that if the economy becomes a tailwind rather than a headwind.
In response to several reader queries, here are a few additional thoughts on alternative non-PE buyers for RCN Metro, should the board or ABRY find maximum value in breaking the company up into its components:
- Level 3 - I have no doubt Level 3 would buy it if the price were right, but it wouldn't be a transformative deal for them and I suspect others would want it more.
- XO - While Icahn is unpredictable enough that one can never say never, I'd be very surprised given the class A preferred coming due, the lawsuit, and all the baggage.
- Zayo - I have no doubt Zayo would love to get its hands on this fiber, but to pull it off they would require funds on a scale they haven't raised before and there probably isn't time.
- Intellifiber - Hmmm, the fit would be nice, but again the funding looks difficult.
- Global Crossing - This would be an interesting concept. I've always thought they needed a metro fiber infusion to help their margins in North America, and the customer fit isn't too bad. But at the moment, it still seems unlikely.
So I'm going to have to stick with TW Telecom as the best fit if the asset becomes available in some form, with Abovenet as a dark horse. The reason these two might have a chance is largely because they are profitable and generating cash, which makes it easier for them to raise the money.
Even if ABRY does succeed with its current bid and keep the metro fiber, they could easily use it in a deal at a later date. Whether it's available now or not, in the hands of money players it seems more likely that the asset will be involved in consolidation eventually.
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