H&Q comments that Concentric could be acquired:
"The company is leveraging partnerships with Williams Communications Group, Microsoft, and SBC Communications to fuel internal growth, and has also been an aggressive consolidator. We also believe the company could be acquired by a larger operator such as Williams or SBC."
Here's a review of the Concentric partnerships:
Williams Communications Group
In June 1999, Concentric announced a strengthening and formalization of its long-standing relationship with Williams Communications Group (WCG). Williams currently owns roughly 11% of Concentric on a fully-diluted basis. There are four key components of the Williams partnership:
*Concentric's $175 million commitment to buy network capacity from WCG over 10 years.
*WCG's commitment to purchase $35 million in Concentric services over the next five years.
*Formalization of WCG's agreement to resell Concentric services.
*The joint development of a nationwide, 100,000+ dial port network over the next 2-3 years.
The details of the WCG agreement are still subject to approval.
Microsoft
Concurrent with the announcement of the WCG partnership in June 1999, Microsoft and Concentric entered into a strategic partnership composed of five initiatives.
*A $50 million equity investment in Concentric by Microsoft.
*The development of a co-branded portal for Concentric's dialup and broadband customers.
*Commitments from Concentric for $7.5 million in advertising spending on MSN properties.
*Development and co-marketing of Windows NT server-based application hosting services.
*A two-year extension of the companies' WebTV contract.
Microsoft's $50 million equity investment in Concentric was in the form of 7% convertible redeemable preferred stock due 2010, convertible into 1.25 million shares of Concentric, and a warrant for an additional 500,000 shares. In total, Microsoft's fully-diluted ownership is roughly 4% of the company.
SBC Communications
Concentric announced in October 1998 that SBC Communications would resell Concentric's line of value-added IP services to its local business customers. In conjunction with the partnership, SBC purchased approximately 1.8 million shares or nearly 4% of Concentric (on a fully diluted basis) at $24.15 per share. SBC also received a warrant to purchase an additional 1.8 million shares at $21.00. The warrant expires in February 2002. The SBC partnership should substantially increase Concentric's visibility in the small-to-medium-sized business market in the Western United States.
DSL Partnerships
In addition to partnerships with WCG, Microsoft, and SBC, Concentric maintains a number of other relationships including those with DSL providers Covad and Northpoint. The company entered into a strategic relationship with Covad in January 1999 in which Covad became Concentric's preferred provider of DSL services. Concentric also invested $10 million in Covad at the (split adjusted) IPO price of $12 per share. Concentric has a similar relationship with DSL provider Northpoint, having invested $5 million in Northpoint at the IPO price of $18 per share in April 1999.
Regards - Dale |
