While it hasn’t dipped its toes into the M&A world for a while, Cogent Communications does like a good deal. And they appear to have found a big one one, pending what has to be a pretty hairy integration project. The backbone operator has entered into a definitive agreement to acquire T-Mobile’s wireline business for one dollar.
Of course, T-Mobile is a wireless company, so it may come as a surprise that they have something like this to sell. But what we’re talking about here is what’s left of the legacy Sprint longhaul network, which T-Mobile acquired in the deal for Sprint’s wireless biz a few years ago. You know, the fiber and data network with origins in the 80s which still has some unique, albeit well worn, fiber routes and did $739M in revenue in 2020. Cogent will use those assets to expand its own product set beyond the IP layer into wavelengths and other products, all the while moving to consolidate all that data revenue onto its own IP backbone.
As part of the deal, T-Mobile will become a big customer of Cogent. That deal will cover IP transit for 4.5 years after closing. The arrangement will involve $350M in payments to Cogent over the first 12 months followed by a similar amount over the following 42 months. It’s not going to happen right away though, since due to regulatory approvals and such they expect to close the deal in the second half of 2023.
This was an asset I always thought would get bought someday, but had basically forgotten about. The fact that it sold for $1 indicates that it certainly loses money hand over fist, and Cogent faces a significant integration task. But there is certainly the opportunity for a pot of gold at the end of that rainbow. For its part, T-Mobile will take a $1B charge to close things out.
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