Fiber Networks Go on the Block
JUNE 18, 2010
By ANUPREETA DAS
online.wsj.com
A decade ago, dozens of companies rushed to build fiber-optic networks, envisioning a new era of high-speed telecommunications. They overbuilt, triggering a string of bankruptcies and wasting billions.
Now, amid a surge in broadband Internet use, demand is finally catching up with supply. At least three privately owned operators of fiber-optic networks have put themselves on the block in recent weeks, hoping to fetch hefty prices.
Those companies, according to people familiar with the matter, are KDL Inc., of Evansville, Ind., a provider of fiber networks in 26 states; Houston-based Alpheus Communications, which builds and manages the fiber backbone that links major cities in Texas; and Fibertech Networks LLC, which leases fiber networks to banks, colleges and hospitals in the eastern U.S.
All three have hired investment bankers, and are hoping to attract bids that value them at around 10 times earnings before interest, taxes, depreciation and amortization, people familiar with the matter said.
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Bloomberg News
A worker holds a fiber-optic cable. Demand for fiber networks has risen.
.KDL is seeking as much as $950 million for its 30,000 miles of fiber network, two people familiar with the matter said. That price would value the company at 10 times Ebitda. Fibertech and Alpheus have indicated they are seeking similar valuations, which would put them in the price range of $400 million to $500 million, these people said.
People who have studied the assets said KDL could fetch between $600 million and $800 million.
Neither KDL, a unit of Midwestern telecom-services provider Q-Comm Corp., nor Alpheus, a joint venture between pipeline operator El Paso Corp. and private-equity firm Genesis Park, responded to requests for comment.
Fibertech Chief Executive John Purcell said that his company, which is owned by private-equity firm Nautic Partners and the private-equity arm of Bank of America Corp., has received a lot of interest from potential buyers. He declined to provide details.
In the late 1990s, exaggerated hopes for the Internet spurred companies to borrow billions of dollars to lay thousands of miles of fiber-optic lines, which transmit data and phone calls through pulses of light.
But demand for the networks didn't materialize as expected, and companies such as Global Crossing Ltd., which had a market capitalization of $47 billion in 2000, collapsed under their debt loads and filed for bankruptcy protection.
Many network operators shed assets and narrowed their operations to specific parts of the country. Others attracted private-equity investments.
Now, with Internet traffic growing at a compounded annual rate of 46% and expected to quadruple from 2007 to 2011, according to a Cisco Systems Inc. study, analysts say fiber networks that lay in disuse for years are gradually being put into operation. As a result, they expect a round of consolidation in the fiber industry.
Last year, Qwest Communications International Inc., struggling under a $14 billion debt load, tried to sell its nationwide fiber network, but was unable to find a buyer willing to pay the $2 billion it sought.
Qwest agreed to sell itself to CenturyLink this year.
However, regional fiber operators—such as KDL, Alpheus and Fibertech—could find buyers more easily as larger telecom-services providers, such as Level 3 Communications Inc., RCN Corp., Time Warner Inc.'s Time Warner Telecom or Paetec Holding Corp. seek additions to their portfolios, bankers said.
The three companies are seeking prices that mirror recent valuations of publicly traded rivals like AboveNet Inc, whose shares trade at 17 times estimated 2011 earnings. AboveNet filed for bankruptcy protection in 2003, but emerged from it with a strategy of focusing only on markets where it was most competitive. |
