TWT Xspeeds Up

tw telecom inc. (Nasdaq: TWTC) is beefing up its metro presence with the acquisition of fiber-based carrier Xspedius Communications LLC , announced this morning.

TWT would pay $531.5 million -- $212.5 million in cash and $319 million in common stock -- for privately held Xspedius. The deal is expected to close within six months. TWT will assume no debt in the transaction. (See Time Warner Gets Xspedius.)

The deal would give TWT a quick way to expand its U.S. network. With the acquisition, TWT's network would reach 75 markets, versus 44 today, and cross 30 states, versus 20 today, officials said on a conference call this morning.

"This combination is like adding jet fuel to our already strong trajectory," CEO and chair Larissa Herda said.

"We've been putting plans in place to expand to many of Xspedius's markets," she added. One example would be Fort Worth, Texas, nearby to TWT's Dallas operations. Herda also pointed out the opportunity to cover more of Florida.

Xspedius has gone through financial straits the last couple of years, with its assets eventually winding up in the hands of a group including majority owner Thermo Capital Partners. TWT officials didn't mention whether Xspedius was profitable, but the company has become leveraged cash-flow positive, Herda said.

One may think that part of the attraction to Xspedius was that the company's network was underutilized, Herda said, although she didn't offer specific metrics. Because Xspedius leases its backbone network, TWT sees a chance to save some money by using its own backbone instead.

Xspedius's revenues for 2007 were expected to be $230 million to $250 million, TWT officials reported.

Xspedius sells mostly T1 and fractional T1 services. TWT wouldn't drop the latter camp but would certainly try to "upsell" them to higher-margin services, Herda said. Overall TWT wants to use Xspedius's network to concentrate on higher-margin customers and products than Xspedius did, officials said.

One analyst commented that Xspedius's margins are about half of TWT's, a figure TWT CFO Mike Peters said was "in the ballpark."

Xspedius's Ethernet services are only "fledgling," Herda said, but that could be an asset to TWT. The reach of Ethernet services has been frustrating to potential customers, some of whom have had difficulty finding a provider. (See Copper Ethernet Makes Strides .)

It's not rosy news for everyone, of course. TWT and Xspedius overlap in 12 markets, and some of the "synergies" TWT sees from the merger would come from the closing of offices and consolidation of network operations.

Combining those savings with new business opportunities, TWT expects to get a boost of $40 million to $50 million to annual revenues, starting 12 to 18 months after the deal closes. That would come after incurring one-time acquisition costs in the same range, $40 million to $50 million.

TWT stock traded at 62 cents (3.9 percent) at $16.55 near the end of the day.

— Craig Matsumoto, Senior Editor, Light Reading

materialgirl 12/5/2012 | 3:46:47 AM
re: TWT Xspeeds Up If the acquired company sold T1 services rather than Ethernet, how much of the network has to be ripped and replaced with something higher bandwidth? Whose gear wins?
CleanSheet 12/5/2012 | 3:46:46 AM
re: TWT Xspeeds Up Private Equity Week covers the collapse of Worldview, a leading VC in the networking/storage industries.

SiliconBeat and Matt Marshall covered it well.

34 companies invested from Fund IV, 19 active, 3 dead, 10 acquired and only 3 for (little) more than the total money that went in.

Comments at SiliconBeat from LPs and others show dysfunctionality between partners, and partner (Mike Orsak's) arrogance and hubris led to the LPs losing confidence in the partnership. Remember Mike's Cosine and other companies? LPs looking for more information that fills out this picture so please step up if you have any.
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