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AboveNet Agrees to Be Bought by Zayo Group for $2.2 Billion

AboveNet Inc., the White Plains, New York-based operator of fiber-optic networks, agreed to be bought by Zayo Group LLC for $2.2 billion after failing to find a buyer last year.

Zayo Group, a closely held company based in Louisville, Colorado, is expanding its fiber network in North America and Europe with the acquisition. AboveNet had halted a search for a buyer last year after failing to attract a bid of at least $80 a share, two people with knowledge of the matter said at the time.

“The combination of AboveNet’s and Zayo’s assets creates a dense fiber footprint throughout North America and Europe for a bandwidth hungry world,” William LaPerch, AboveNet’s chief executive officer, said today in a statement.

The cash offer of $84 a share is 13 percent more than AboveNet’s closing price on March 16, the companies said in the statement. AboveNet rose 12.8 percent to close at $83.74 in New York trading. Before today the shares had gained 17 percent since May 23, the day before DealReporter said the company was considering a sale.

Zayo received equity commitments from GTCR LLC, a Chicago-based private-equity firm, and Boston-based Charlesbank Capital Partners LLC, according to the statement. Private-equity funds that were exploring offers for the company last year backed off as financing markets tightened, people familiar with the process said at the time.

Largest Deal

“We’ve been looking for ways to make a bet on increased bandwidth consumption,” Philip Canfield, a principal at GTCR, said in a telephone interview. “These companies provide the underlying infrastructure necessary for that to happen.”

The deal would be the largest U.S. acquisition in the Internet connection services industry in history, according to data compiled by Bloomberg. Zayo is paying about 11 times earnings before interest, taxes, depreciation and amortization. That compares with a median of about 16 in five deals since at least 1997.

AboveNet counts brokerage houses, investment banks, Web companies and health-care providers among its customers, according to regulatory filings. The company will have 30 days to consider other offers, known as a “go shop” provision, according to the statement. Otherwise the deal is expected to be completed by mid-2012.

The go-shop provision may be extended to May 2 under certain circumstances, the companies said in the statement. Zayo has certain rights to match any superior bid.

Possible Bid

The most probable bidder during the go-shop period would be CenturyLink Inc., the Monroe, Louisiana-based phone company, according to Donna Jaegers, a D.A. Davidson & Co. analyst. CenturyLink has been expanding through acquisitions, spending $38 billion in less than three years to buy regional phone company Qwest Communications International Inc., data-hosting provider Savvis Inc. and Embarq Corp., a provider of telecommunications services.

“AboveNet’s got a clean balance sheet and Century has been trying to deleverage, so if it could do a deal for stock that would be a nice deleveraging for it,” Jaegers said in a telephone interview from Denver. “So Century would not only get growth assets that it needs, but it can also do a deal as a way to deleverage its balance sheet.”

Debra Peterson, a spokeswoman for CenturyLink, said the company doesn’t comment on “rumors or speculation.” AboveNet said in the statement it won’t discuss future bids unless the board of directors decides to consider them.

Debt Financing

Morgan Stanley and Barclays Plc are providing Zayo with debt financing, the companies said. JPMorgan Chase & Co. served as lead adviser to AboveNet, with Moelis & Co. acting as co-adviser.

Wiggin and Dana LLP provided legal advice to AboveNet, and Willkie Farr & Gallagher LLP was legal counsel to the company’s board. Latham & Watkins LLP and Gibson Dunn & Crutcher LLP worked as GTCR’s and Zayo’s legal advisers, respectively.

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