The energy market may not be the happiest place in the world, but telecommunications appears to be an even less appealing industry at the moment. Dynegy Inc. (NYSE: DYN) announced today that it will sell the last portion of its telecom business to 360networks Inc. next month (see Dynegy Sells Comms to 360networks).
360networks, which has created a direct subsidiary to complete the purchase, will buy Dynegy’s entire 16,000-mile U.S. network, including customers, fiber leases, and collocation facilities.
Neither Dynegy nor 360 would reveal the financial details of the deal, which still requires regulatory approval, but 360 spokesman Chris Mueller admits that the carrier will pay less than the approximately $700 million Dynegy originally paid for its U.S. network in 2000. “It’s safe to say that,” he says. “As you well know, telecom assets aren’t selling for what they used to.”
“I’m sure they got pennies on the dollar at best,” says Craig Johnson, an independent analyst based in Portland, Ore. “Buying up assets for pennies on the dollar is the smart thing for anyone to do if they have deep enough pockets behind them.”
Buying the Dynegy network would certainly appear to be a good move for 360, which only reemerged from bankruptcy last November (see 360networks Comes Out of Chapter 11). Comprised of four fibers along the Level 3 Communications Inc. (Nasdaq: LVLT) route, in addition to metro access over Telseon Inc. fiber in ten cities, and add/drops in 44 cities, the network will add diversity to the carrier’s route structure, as well as about 50 new customers, Mueller says. And since 360 already has all the sales and technology staff it needs to run the new network, he says, it will be able to eliminate all of Dynegy’s people and overhead.
“If you can get customers cheaply without taking on a lot of costs, it could be a good idea,” says i2 Partners LLC analyst Andrei Jezierski.
The Dynegy deal is also practical in light of 360’s recent purchase of Canadian GT Group Telecom last month, since many of that carrier’s customers rely on data transmission to the U.S. (see 360networks Completes GT Acquisition). “This will give us diverse paths to deliver that data traffic, and help us service those customers,” Mueller says.
The deal is also good news for Dynegy, which was reportedly considering shutting down the network if it failed to find a buyer for it. The company, which wrote off its energy trading unit last year, says it will now solely focus on its natural gas generation and liquids businesses. “Now our focus is on operating our core energy assets well,” says Dynegy spokesman David Byford. “This is the last of our non-core asset sales.”
Today’s announcement comes only two months after Dynegy revealed that it had sold its European telecom unit to London-based private equity firm Klesch & Company Limited (see Euro Players Pick Up Telco Sticks and Dynegy Exits Telecom). The energy giant, which paid $200 million for the assets in early 2001, has not revealed the financial details of the deal.
Dynegy saw its stock price rise more than 4 percent in afternoon trading today, jumping 10 cents to $2.58 a share.
— Eugénie Larson, Reporter, Light Reading