Metromedia Fiber Network (MFNX) 37 1/8 -5 3/8 : It's just one deal after another over at Metromedia Fiber Network. Just two weeks after announcing a
landmark deal with Bell Atlantic (BEL), Metromedia acquires AboveNet (ABOV) for 1.175 shares of MFNX for each share of ABOV (currently 40 9/16 +3
13/16). This values AboveNet at $1.3 billion, or a Price/Sales ratio of 130. Wall Street's reaction seems to be negative, based on valuation of AboveNet, but at
Briefing.com, we like the deal. Metromedia has been in the business of leasing "dark fiber" networks to businesses. A dark fiber network is the physical infrastructure
for a network, but without a set protocol. The customer can run any type of information protocol they want, all voice, all IP-based data, a minicomputer based
network, or even older protocols like token-ring networks. Metromedia just provided the physical infrastructure and they have been singing up customers faster than
analysts had planned. The Bell Atlantic deal was to install Metromedia equipment into BEL's central offices and then lease the local exchange capacity to other
communications companies. It was a good deal for BEL because they can't get into long distance service until they start allowing competitors to offer local phone
service. Now Metromedia's acquisition of AboveNet makes Metromedia a provider of leased internet networks, not just dark fiber networks. This should be a much
more powerful offering, because it simplifies life for small businesses. AboveNet's target market has been ISP's but as corporations grow, AboveNet can start selling
what will essentially be private intranets between locations. And AboveNet's physical network infrastructure fits remarkably well geographically with Metromedia's
existing dark fiber network. We really don't know whether Metromedia's customers are using the system primarily for voice or data, but the AboveNet acquisition
makes Metromedia a much broader service provider. It looks likeWall Street doesn't like this deal, the stock is off sharply, but some of the decline is normal merger
arbitrage where you short the acquirer and buy the acquired. There may be some who feel that Metromedia is overpaying, but the market cap premium is only about
10%, based on yesterday's ABOV close. Frankly, we think six months from now, any overpaying will have been forgotten. It's a buying opportunity for long term
holders of Metromedia Fiber Network. - RVG |
