Zayo is interested in adding Allstream's substantial fiber and colocation assets to Zayo's core network Communications Infrastructure business.
Allstream provides Internet and other services to commercial and government customers and the U.S.-listed Zayo (NYSE:ZAYO) says it wants to add the company's assets to its own communications infrastructure business. Allstream has over 9,000 route kilometres of metro fibre concentrated in Canada's top five metropolitan markets (Toronto, Montreal, Vancouver, Ottawa and Calgary) that connect to approximately 3,300 on-net buildings. The purchase price is C$465 million.
"Within today's Allstream is a robust collection of fiber networks, which are enormously valuable to both Allstream and Zayo customers", said Dan Caruso, chairman and CEO of Zayo in a news release.
In addition, Allstream has a 20,000 route kilometre long-haul fibre network connecting all major Canadian markets and ten United States network access points, and also operates colocation space in Toronto, Montreal and Vancouver.
"We engaged with a variety of potential strategic and financial buyers in a very orderly process". Zayo plans to separate this business from other parts of Allstream and integrate it into Zayo, using the same approach as it has followed for Zayo UK and Zayo France.
"While Allstream's overall financial profile is not that exciting to us, the key is the attractiveness of the assets and the opportunity to better monetize them", said Colby Synesael, managing director of senior equity research at Cowen and Company.
Zayo cited Allstream's fibre network as one of the main reasons for its acquisition.
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Because the cloud is sensitive to latency, more customers are demanding on-network worldwide services; Zayo's latest acquisitions are putting the provider in a unique position in the market and with partners, said Vince Bradley, CEO of Malibu, Calif.-based telecom master agent and connectivity services distributor World Telecom Group (WTG), which partners with Zayo.
The transaction is subject to certain closing adjustments, including normalised working capital, as well as certain pension-related obligations.
That segment represents about half of Allstream's revenue.
News of the deal bumped Zayo stocks on Monday up, to close at $23.91 a share. The all-cash deal is expected to be funded with existing cash and revolving credit facility capacity and close in the first calendar year quarter of 2016.
MTS, headquartered in Winnipeg, is a national communications provider operating in two segments, MTS and Allstream.
