Expansion-Minded RCN Sparks Bidding War for Telecom

RCN, the Herndon cable network operator that has been searching for ways to expand, has offered to purchase New York-based network services firm FiberNet Telecom for $96 million -- setting off a bidding war in the process.

The offer, made earlier this month, came after FiberNet's May 28 announcement that it would be bought by Zayo, a network operator based in Louisville, for about $88 million.

One term in the Zayo agreement allowed FiberNet to entertain any higher offers made before June 17. RCN said it sent FiberNet a letter on June 16 with a proposal to buy it for $12.50 a share in cash, which was higher than Zayo's offer of $11.45 a share.

RCN said it would not comment on the status of its proposal. FiberNet didn't respond to a request for an interview and Zayo declined to comment.

RCN operates cable television and Internet services in Boston, Chicago, the D.C. area, Philadelphia and New York. Its offer comes as many smaller telecoms have faltered during the recession, and it underscores the company's desire to strengthen its market position even as the credit crunch has made acquisitions more difficult. Telecommunications services and equipment for businesses has slowed for many network carriers, but network traffic in general continues to grow as users increasingly use video, Internet-based voice and other applications over the Web.

"The acquisition of FiberNet is attractive because it would increase RCN's density in its major markets," said Carolyn Capaccio, a spokesperson for investor relations firm Lippert/Heilshorn & Associates, which is representing RCN. FiberNet runs centers where its racks of servers connect Internet traffic between network carriers. "We don't see how RCN's bid would not be viewed as superior because it is at a higher price."

In a June 18 filing with the Securities and Exchange Commission, FiberNet said it will "continue discussions with RCN regarding its proposal." But it also said FiberNet's board of directors "cautioned that it was not making a recommendation with respect to the RCN proposal and reaffirmed its recommendation in favor of the pending merger with Zayo Group."

FiberNet operates in the New York and New Jersey area, Miami, Chicago and Los Angeles. RCN, a cable and Internet services operators for consumers and businesses, said the acquisition would deepen its network footprint in those metropolitan areas for enterprises, its fastest-growing business.

Capaccio said RCN became cash-flow positive in March and has about $18 million cash in hand. It has hired UBS and Deutsche Bank to work on obtaining financing for the proposed acquisition.

RCN's stock closed up 4 cents yesterday at $6.02. FiberNet fell 27 cents and closed at $12.68, up sharply from around $10 a share at the time of its announcement with Zayo.