Yesterday I asked readers the annual January question of which US network operators were most likely to get bought this year, and while the poll will remain open for a few days yet let's take a look at the trends thus far.
As they have each of the last few years when I asked this question, XO was the runaway leader. The difference this year is that Icahn has finally taken the first step, forcing out the remaining minority investors and giving him unfettered access to those NOLs he wants so badly. Come August, everyone expects the company to go up for sale since the status quo is not sustainable and Icahn doesn't seem ready (at this time) to double down and do the consolidation himself. Instead, last autumn's round of layoffs seem to indicate he's cleaning it up to raise EBITDA and maximize the price he can get.
If an auction for XO does happen, there would be half a dozen or more likely bidders including but not limited Level 3, tw telecom, Windstream, Earthlink, Zayo, and even CenturyLink - which could get a lot out of the Tier 1/2 metro assets. But whether anyone will meet Icahn's price is an entirely different question, because it ain't going to be what he bought out minority investors for.
The next five (AboveNet, Sprint Wireline, Sidera, Broadview, and Integra) all make sense to someone. Personally, I think if AboveNet or Sidera were going to be sold soon, they would have done it last summer -- but you never know. Sprint Wireline and Broadview were my other picks as well. The former because the timing seems right for Sprint to turn it into cash and the latter because their owners have been trying to sell it for a while now and Earthlink will probably be ready to take it on soon.
But there was an interesting change from last year's poll. Almost nobody expects Zayo or Level 3 to get bought this year, whereas last year each was in the top 5. Last year, there was a school of thought that had Zayo's private equity backers ready to cash in. But when that didn't happen and instead the 360networks deal did, it pretty much shot down that thesis. Likewise after the Global Crossing deal, whether one likes Level 3 or not nobody thinks they're going to get bought I guess.