RCA Corp. has agreed to purchase Cylix Communications Network for up to $65 million, the first major acquisition by RCA since Thornton Bradshaw became its chairman last year and only the second major purchase by the company in at least a decade, industry sources said today.
Cylix, a Memphis-based high-speed data system that serves customers in 300 cities and 46 states, had sales of about $6 million last year, according to industry sources. Owners of the privately held partnership include Scripps Howard, M/A-COM, Storer Broadcasting Co., and Data Communications Corp. The transaction's closing price is based on several contingencies.
The system is generally used by large, transaction-oriented businesses, such as banks, to avoid the high costs of using local phone lines for communications needs.
The Cylix network, though little known outside the industry, connects offices over leased phone lines that also are linked to 25 regional satellite earth stations, according to John Chapman, a communications and computer analyst with the Gartner Group Inc. Chapman said Cylix expects to install 100 earth stations by the end of next year.
RCA officials say the purchase represents the second major development in the company's rejuvenation strategy designed by Bradshaw, who has repeatedly said he wants to move RCA away from its current broad diversification and back to its communications industry roots.
The first move was disclosed six weeks ago when RCA and Columbia Pictures Industries Inc. announced a joint videocassette and disk agreement that gives RCA's home video business access to Columbia's library of films.
RCA's purchase of Cylix is expected to be announced today. It must, however, be approved by the Federal Communications Commission and also go through the merger clearance process administered by either the Federal Trade Commission or the Justice Department.
It is the product of a lengthy internal strategic planning process at RCA. Among other things, top level RCA managers concluded that the company ought to make a major move into the high-speed data communications business.
"We want to get into that market as early as possible," said Eugene Murphy, chairman of RCA Global Communications Inc., in an interview several weeks ago. "We don't want to take two years to do it."
Several industry observers said they thought RCA's existing position as a leader in satellite and data communications made the acquisition a logical step. "RCA has found themselves a good, powerful network," Chapman said.
Howard Anderson, president of The Yankee Group, another consulting firm, also said the deal makes sense. "It would be a high-risk acquisition for almost anyone, but it might be the niche they need," Anderson said.