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COLT Surges on AT&T Bid Talk

Ray Le Maistre
11/30/2007

Is AT&T Inc. (NYSE: T) having another go at invading Europe?

Pan-European enterprise voice and data services operator Colt Technology Services Group Ltd saw its share price leap by 25.25 pence, more than 16 percent, to 179.75 pence (US$3.71) on the London Stock Exchange Friday morning following an unconfirmed report that AT&T has advanced a takeover bid.

According to a report in The Guardian newspaper, Fidelity Investments, COLT's majority shareholder with a near 65 percent stake, is seeking a 300 pence per share offer from AT&T, which is rumored to have offered between 240 pence and 250 pence for each COLT share.

COLT, one of Europe's leading alternative infrastructure-based carriers, has 680 million shares issued, so a 250 pence offer would value the company at £1.7 billion ($3.5 billion), while a 300 pence per share offer would be worth £2.04 billion ($4.2 billion).

COLT issued a statement to the London Stock Exchange saying that it "notes the recent movement in the Company's share price and confirms that it knows of no reason for the increase in the share price," and declined to comment further.

An AT&T spokesman says the company doesn't comment on rumors. Fidelity had not responded to questions as this article was published.

The speculation comes just months after AT&T launched a failed bid to take a controlling stake in Telecom Italia (TIM) , which is now controlled by a consortium led by Spanish giant Telefónica SA (NYSE: TEF). (See AT&T Abandons Italian Bid, Telefónica Gets Green Light for TI Stake, and Telecom Italia's CEO, Chairman Quit.)

In launching that bid, AT&T noted that the Italian operator owned assets in a number of markets, including France, Germany, the Netherlands, that the American giant considers important for its international activities. Germany is COLT's single biggest market, and also provides services to corporate customers in 12 other markets in Northern and Western Europe. AT&T's international customer base currently comprises U.S. corporates with overseas operations. (See AT&T Signs Deal and AT&T Lands GM Deal.)

COLT provides voice, data, and managed services to more than 50,000 customers, of which 3,500 are large national and international corporate users, more than 40,000 are medium-sized enterprise users, and 500 are wholesale customers, with the remainder being smaller, local enterprise users.

It owns a 13-country, 20,000km optical network that includes 32 metro rings and fiber access to more than 10,000 buildings. It manages 17 data centers, employs 3,850 staff, and has a net debt of €48.2 million ($71.2 million).

Its main competitors are national operators and other pan-European players such as Orange Business Services , BT Group plc (NYSE: BT; London: BTA), Verizon Enterprise Solutions , and Interoute Communications Ltd. , most of which are also AT&T's main rivals for European corporate accounts.

In its most recent quarter, COLT reported a 7.6 percent decline in revenues to €419.4 million ($619 million), but its profit before tax jumped nearly seven-fold to €8.7 million ($12.8 million), up from €1.3 million ($1.9 million) a year earlier, as its sales shifted away from low-margin voice services to higher-margin data services. In that quarter to September 30, COLT's data service revenues were €214.6 million ($317 million), more than 51 percent of its total sales. (See COLT Reports Q3.)

The operator is pushing hard to establish itself as a leading supplier of Ethernet and broadband access services in Europe and won the Product Portfolio Award at this year's Heavy Reading Ethernet Service Provider of the Year Awards for Europe. (See Trio Lands Ethernet Carrier Awards , COLT CTO: Let's Connect Now!, COLT Plans Swiss LLU, COLT Boosts Ethernet Speeds, and COLT Deploys Actelis.)

Earlier this year, during a strategic review, COLT identified one of its main weaknesses as a lack of geographic reach through partners, and a lack of multi-country customers that deliver higher revenues and make best use of the operator's network assets. Becoming part of AT&T's international business would help solve those problems.

AT&T has been beefing up its international operations in recent years through network investments in an IP/MPLS core infrastructure and in various access technologies, including DSL and Ethernet. In March it announced plans to invest $750 million this year in its international network and service development, and recently announced the opening of a new service center in Slovakia. (See AT&T Invests in Global IP, AT&T Goes Global (Again), and AT&T Opens Facility.)

AT&T famously teamed up with BT during the bubble years to create Concert, their international services joint venture: That venture popped at about the same time as the bubble. (See AT&T and BT to Unwind JV.)

— Ray Le Maistre, International News Editor, Light Reading

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