M&A Journal: Where Is Big Fiber?

September 24th, 2010 by · 12 Comments

I was looking back over yesterday's post reviewing the M&A activity this year, and it occurred to me that I may never have written a general fiber/bandwidth M&A article and not mentioned ANY of the names AT&T, Verizon, Sprint, Level 3, Global Crossing, TW Telecom, XO, Abovenet, or even Cogent.  The only large, public network operators which have participated in this year's M&A binge (as a buyer) have been the rural ILECs CenturyLink and Windstream plus super-CLEC PAETEC, each of which is in the process of seriously boosting the fiber in their diet.  So where are the other guys?

I suppose there are good reasons why the largest strategic buyers have stayed home.

  • AT&T, Verizon, and Sprint care mainly about wireless right now, even Verizon's FTTH efforts are waning.
  • Level 3 once bought like 7 companies in just over a single year, but is still battling back from the aftermath.  Even still, they'd probably be in the game if the street would fund them cheaply again - which last week's expensive $175M converts proved is not currently the case.
  • Global Crossing bought metro assets in both the UK and South America, but can't seem to find anything it likes in North America even though it seems like they could really use them to boost margins.  But metro valuations are probably higher than they like, and getting enough for their money would probably require them to expand their focus from wholesale and large corporate customers - something they don't seem interested in.
  • TW Telecom has always been a tad conservative, but I really expected they would somehow make a move.  The integration of Xspedius proved they know precisely what they are doing, and their balance sheet, profitability, and stock price make them well positioned financially to buy just about anything.  I was surprised that they didn't win any of the auctions up in New England, where they don't currently have anything.  Perhaps they'll turn up somewhere unexpected soon.
  • XO is, well, otherwise occupied while Carl Icahn plays his games.  With common stock trading for less than a half filled container of tic-tacs, cash levels dipping toward the $50M mark, and management publicly maligning the idea of taking on debt - they're in no position to be buying anyway.
  • Abovenet is also well positioned financially, however their business model is so tightly focused on Tier 1 markets that there aren't many targets out there that fit.  There are a few though, so you never know.
  • Cogent, like Level 3, once bought everything it could get its hands on - though mostly at garage sales.  Haven't heard a peep from them on the M&A front, these days they are buying/leasing dark fiber both in the metro and longhaul.  Apparently, actual fiber asset prices aren't low enough to interest them.

So for the most part, I guess the field really is wide open for aggressive buyers like PAETEC, Windstream, Zayo, Lightower, and of course those ever-present PE firms.  However, I still think TW Telecom will show up in the picture eventually.  So many assets look tempting when added to their huge footprint and well-oiled operations... even Larissa Herda can't resist the temptation forever, can she?

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Categories: Mergers and Acquisitions · Metro fiber

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12 Comments So Far


  • carlk says:

    What is this gibberish about relative to your astute mention of that expensive convert? Has anyone located their CFO lately? He has been missing a lot too.

    With much of those operational problems behind them, Storey said that while he would not identify any specific deals, they “are very actively looking at acquisitions,” While Level 3 says that they are willing to put up the money for the right asset, they want to ensure that the “terms are right and if we look at carving out a business of a larger entity we want to make sure the company we are carving out has some skin in the game.”

    Read more: Level 3’s Storey: 100,000 new opportunities are within its network reach – FierceTelecom http://www.fiercetelecom.com/story/level-3s-storey-100-000-new-opportunities-are-within-its-network-reach/2010-09-24#ixzz10Ts37Aqx
    Subscribe: http://www.fiercetelecom.com/signup?sourceform=Viral-Tynt-FierceTelecom-FierceTelecom

  • carlk says:

    Let’s zoom in closer on the text for a better STOREY as to whether we are dealing with a bunch of delusional psychopaths with little more than one year’s cash left before they file BK, or some super heroes with Batman and his Boy Wonder hiding in the Bat Cave waiting to hear “pins drop” from Candice Bergen.

    They’re going to buy someone BIGGER while carving out businesses with its remaining owners maintaining SKIN in the GAME!

    I thought it was O’Hara who told the tall Irish Tales consisting of Blarney. It’s a good thing we have that lucky Irish “GREEN SHOE” with 26MM gross CACHE coming our way to buy something BIGGER than we are!

    Your Board JOKER

    While Level 3 says that they are willing to put up the money for the right asset, they want to ensure that the “terms are right and if we look at carving out a business of a larger entity we want to make sure the company we are carving out has some skin in the game.”

  • carlk says:

    See how focusing and zooming in helps, Rob? It’s NOT GLBC, rather, if it’s something in the long haul space nearer term, it will be Sprint’s LD only biz, and if they unleash it to (3), there will be defined metrics to ensure its success tied to subsequent price payments once those metrics are achieved. They will not destroy value like they did with, let’s say, Broadwing, with someone like Dave Huber retiring to his Florida mansion after throwing an “incomplete pass.”

    I applaud such an approach should this become the method for their next MNA.

    Keep watching S’s LD revenue line.

    Since you have been playing a deaf and dumb role, I do have another question for you, however.

    Who is the price whore that the analyst at Goldman refused to name?

    • Rob Powell says:

      I would caution taking Storey’s comments too much as a predictor of the future. If a Sprint deal was close, he’d have said nothing about it. Instead, the comment could be seen as a bargaining position with GLBC. Both combinations are theoretically possible, but in practice are probably not doable right now. Maybe in 6 months if Level 3 follows through on revenue growth.

    • Rob Powell says:

      Oh, and I would assume the pricing protagonist mentioned anonymously by the analyst would refer to Cogent, since it referred to IP pricing (I think).

  • carlk says:

    It wasn’t that long ago that (3)’s management indicated CCOI being the least of their worries, at least according to a nameless IR official. The representative actually took offense in hearing their name being mentioned as formidable competitor. I wonder if they’re taking offense hearing about AKAM, today, while having moved so strategically, and so well in advance of where their ball needed to go notwithstanding?

    In the meantime, the degenerate hustlers on the Street are using every dirty trick in their book to destroy value which in turn, debases (3)’s currency from being utilized in MNA, while requiring it to use a great deal more of it, tied to “expensive converts” like you pointed out.

    I think (3) should change their business model and begin developing a laser missile system in coordination with the defense industry, one which is intensely focused on killing these vipers in their dens.

    http://www.reuters.com/article/idCNN2623446220100926?rpc=44

    • Anon says:

      carlK as one of the few carlk translators on this board, i am surprised at your take re the vipers.

      can we agree that taking public money (in the form of a Billion shares, no less) has benefits and burdens.

      the money is the benefit. the burden is the buyers are free to sell them to other holders, including those that don’t care about the issuer’s theories of future-think and expect financial performance

      • carlkj says:

        We agree whole heartedly, with one exception. True owners of the underlying business expect that when their managers “sell stock” for money, the intrinsic value of their stock will be enhanced by the proceeds received after selling that stock. At the same time, true owners of a company must be confident that when their management team releases stock to any public miscreants as a result of the vagaries of the market, that they must have a method to “put it” to them, if and when they show up at the “Miscreant Ball.”

        Don’t worry though, Anon. As stated, reliable sources have confirmed that (3)’s a bust, made up of diluted vapor ware for most incumbent owners who have found (3) wallpaper to be attractive over many years.

        “Lather, rinse, repeat.”

  • Dave Rusin says:

    Rob:

    I still believe to raise money for a charity, run a contest.

    20% goes to the winner and 80% to the charity.

    The contest question: On what date at the closing Bell will the price of XO stock equal the price of LVLT stock?

    Set up PayPal to collect entries — say $10 … close all entries by December 1st. Run the contest 8 months. If we don’t have a winner, the closest date to the lowest marginal difference in stock prices will be the winner … we know why XO is stick where it is … LVLT is the wild card in the contest.

  • carlk says:

    I don’t know, Dave, but are you cynically implying that Ichan along with his Wall Street miscreants, are up to no good again?

    Did you see (3)’s volume today? It appears that they’re throwing their fingers at the regulators saying, prove it!

    If not, change the loopholes in the laws we’re exploiting.

    Don’t answer this question, because I already know the answer!

    I would still like to hear back from you on that other question, however. 🙂

  • carlkj says:

    On the other hand, maybe you were alluding to the huge tax loss selling that is going to occur inside of these dirty toilet bowl names by 10’s last trading day’s end.

    In the case of (3), this is what happens when persistent, consistent, sustainable, satisfactory execution takes a back seat to not having the trust, belief and full understanding by the silly people who are supposed to “make market” in your name.

    There’s always Q3, and next year, and so on, and so on for the next twenty years, however, right?

    What was the Mandarin line in the new Wall Street movie when they were enticing the sharp Chinese buyer, Mr. Wang, who was receiving their “pitches”? Rob probably knows, but the English translation went something like, good things come in time.

    That may be true, but I’m hearing from good sources that, rewards will never be seen by most of the common owners who the (3) card deck is stacked with today. imo

  • DP says:

    Usually I can translate what you guys are saying enough to figure out which stock in the telecom space to buy and, while not making me rich, that has done me quite well so far. But Carl and Dave you have to dumb down the rhetoric. When you say that XO and 3 are going to be the same price does that mean that XO is heading up to 1.00 or that 3 is heading down to 50 cents?

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