Zayo announced yesterday that it had “a definitive merger agreement to be acquired by affiliates of Digital Colony Partners and the EQT Infrastructure IV fund”. The $8.2 billion deal takes Zayo off the New York Stock Exchange and puts it in the hands of owners who might have the patience to play the long game against the monopoly-model telcos – AT&T, Verizon and CenturyLink, particularly – who control the lion’s share of long haul and metro fiber in the U.S.
Might.
In the statement announcing the deal, the head of Digital Colony, Mark Ganzi, at least spoke encouraging words. He said Zayo “has a unique opportunity to meet the growing demand for data associated with the connectivity and backhaul requirements of a range of customers”. That’s true enough, and if – if – Ganzi is sincere it would indicate that his Plan A is to make Zayo a stronger competitor, rather than flipping it as quickly as possible to one of the big players.
According to a story in Bloomberg by Gillian Tan and Nabila Ahmed, the deal will cool down recent pressure to perform from shareholders…
Zayo, led by Chief Executive Officer Dan Caruso, has been under pressure from activist investors including Starboard Value and Sachem Head Capital Management.
After peaking at $39.35 last July, Zayo shares tumbled as low as $20.46 as the company struggled through organizational changes and concerns that the market for fiber lines was becoming overcrowded. The shares began to rebound late last year on news that a sale was in the works. In March, it announced that it was evaluating strategic alternatives.
Zayo owns or controls a lot of fiber in California. The map above shows its metro fiber network in the Bay Area. It also owns a middle mile route between the Bay Area and Sacramento, among other fiber assets. With the sale of Level 3 to CenturyLink in 2017, Zayo is one of the few big, independent sources of fiber remaining in California.
As the press release noted, Zayo’s new owners need to get regulatory approvals before they can take possession. That includes sign off by the California Public Utilities Commission. Zayo holds a certificate of public convenience and necessity (CPCN), which allows it to take advantage of privileges, such as the ability to install conduit and fiber in public streets and to attach cables to utility poles. It obtained the CPCN in 2008 when it acquired NTI, a smaller telecoms company. The CPUC had to approve the purchase then, and will have to do so again with this latest transaction.