Mergers & acquisitions

XO Buys Allegiance

XO Communications Inc. (OTC BB: XOCM.OB) has seen off Qwest Communications International Inc. (NYSE: Q) in the head-to-head battle to buy bankrupt carrier Allegiance Telecom Inc.

After a titanic struggle, XO triumphed with a cash and stock deal worth nearly $656 million at XO's early morning share price of $7.60.

The auction, which started early yesterday afternoon, went on until about 5 a.m. EST this morning, and the winner is naturally pleased with the result. "It's ecstatic over here," says XO spokesman Chad Couser.

As reported earlier in the week, XO's need and desire for the bankrupt carrier's network and customers was greater than its rival's (see XO's Quest for Allegiance).

The deal will provide greater value for Allegiance's creditors than a previous arrangement with Qwest, which struck a deal last December worth $390 million to buy the struggling CLEC. XO will pay $311 million in cash plus about 45.38 million shares of XO common stock, which at this morning's price of $7.60 would be worth $344.9 million. That values the entire deal at $655.9 million.

However, a source close to the deal says further financial details, including a set value of XO stock, will be revealed next week. In addition, the source says the deal will involve XO taking on some liabilities that will ultimately value the deal at around $900 million, though some details have yet to be finalized. Significant job losses are also likely, adds the source, as there is considerable overlap between the assets of the two companies; and it's unknown whether Allegiance senior management will join XO.

What is certain, however, is that the new entity creates a significant infrastructure-based national service provider, combining two of the two largest national competitive local exchange carriers (CLECs).

The deal involves the majority of Allegiance and its subsidiaries, though the CLEC's customer premises equipment sales and maintenance business, known as Shared Technologies, and its managed modem business, plus certain other unspecified assets and operations, are not included.

Allegiance will try to sell these additional assets separately, says a company spokesman, though their ultimate fate will be decided by the bondholders that stand to gain from any money raised. The spokesman adds that Allegiance does not expect any regulatory intervention regarding the deal with XO.

— Ray Le Maistre, International Editor, Boardwatch

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googol_byte 12/5/2012 | 2:27:16 AM
re: XO Buys Allegiance Seems like an awful lot for a bankrupt CLEC.

Why didn't they save everyone the hassle and just post it on eBay?

themaninblack 12/5/2012 | 2:27:14 AM
re: XO Buys Allegiance I don't think that PayPal would take a transaction that big.
newbee2002 12/5/2012 | 2:27:13 AM
re: XO Buys Allegiance It is unbelievable! I guess :)

"It's ecstatic over here," says XO spokesman Chad Couser.
H_ngm_N 12/5/2012 | 2:27:06 AM
re: XO Buys Allegiance Corvis is probably breathing a sigh of relief now.... That's 656 million less that they will have to fork over now to buy Qwest.

= K
fw23 12/5/2012 | 2:27:05 AM
re: XO Buys Allegiance It was key to the plans of Corvis that Qwest
not buy Alligiance. Mission accomplished there.
So Qwest is safe for a while. Things could have
gone a whole lot different though.

This isn't the end for Alligiance. This deal
involves one dying company (XO) buying a
bankrupt company. The calculation in Colombia
is that CORV will be able to pick up both of
them for far less in the near future. They
may still have to deal with Qwest then, but
their show of strength this time may keep
Qwest from ponying up to the table again
anytime soon.

I'm really enjoying all the know-nothings and
the bashers chew on all this. It goes right
over all their heads.

Every basher and dot-BOMB investment artist
thinks they know all the answers on this one,
but they dont even know the questions.

newbee2002 12/5/2012 | 2:26:58 AM
re: XO Buys Allegiance <<this deal<br="">involves one dying company (XO) buying a
bankrupt company. The calculation in Colombia
is that CORV will be able to pick up both of
them for far less in the near future.>>

That's exactly how I see it. Hehehe... this is fun. A year from now Huber will buy Q and XO together for $91M... and hopefully he still has some extra cash to buy LightReading too. It's like Comcast buying Disney :)</this>
newbee2002 12/5/2012 | 2:26:57 AM
re: XO Buys Allegiance << I bet lots of people on the
board have been burning up the phones today
trying to figure out why Qwest backed down.

"How did Icahn and XO manage to come up with the winning bid? One reason, some speculate, is that Qwest wanted Allegiance's assets basically to reduce its access charges for routing calls to local lines, rather than to actually grow its business. Thus, it didn't want to pay up for those assets."


Given the fact that XO is run by an ex-GlobalX, the price seems reasonable :)
fw23 12/5/2012 | 2:26:57 AM
re: XO Buys Allegiance
Get Real. It will take a whole lot more than
$91M for Corvis to bag Qwest. Unless you
mean just the cash portion of the deal. I think
Corvis will be able to line up LBO financing
for Qwest should become necessary.

But given that Qwest backed down yesterday,
it may not even be necessary for Corvis to
bother with them anymore.

They went EYE-2-EYE with Huber. And Qwest
blinked first. I bet lots of people on the
board have been burning up the phones today
trying to figure out why Qwest backed down.

I really expected this to be knock-down fight
between these two. Management problems aside,
the more modern thinking guys at Qwest have
a very high opinion of Corvis.

Maybe it was concern over that issue that made
Qwest back down. Still, it really weakens the
position of the CEO.

photonicGuru 12/5/2012 | 2:26:31 AM
re: XO Buys Allegiance The merger 'll fuel the broadband deployment. I main things about the XO access to existing allegiance customer base and geographical reach...I still think, if you convert customers and geographical coverage into money then deal won't look bad at all.

However, the teething problems with this merger would be - People Integration alongwith System Integration especially Billing, Cust. Care and Network Operations.

atmguy 12/5/2012 | 2:26:30 AM
re: XO Buys Allegiance

Didn't these guys declare bankruptcy in 2002? Have they recovered so soon to buy Allegiance for $656M? Have they really recovered or is it another bubble?

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