New zayo network

Boulder, Colo.-based Zayo Group plans to break up its just-acquired Allstream business into three different business groups, according to CEO and chairman Dan Caruso.

Zayo and Winnipeg-based MTS Inc. announced a deal yesterday that will see MTS sell its wired telecom business to Zayo for $465 million, pending regulatory approval. In an investor call with investors this morning, Caruso revealed further details around Zayo’s plans with Allstream, saying it will create three business groups here: Zayo Canada, a voice/unified communications unit, and a small business unit.

Zayo is no stranger to acquisitions, with 36 under its belt since its foundation in 2007. On the company’s website, one of the main mission statements is to acquire a global network of fibre network. That’s where the Zayo Canada business will focus, delivering broadband connectivity to its clients, as well as colocation services from Allstream’s colocation services.

Zayo Canada will look similar to other overseas business units created, such as Zayo UK and Zayo France.

“The biggest reason we did this is the resulting business will be consistent with our core strategy,” Caruso

Dan Caruso is a co-founder and CEO of Zayo Group.
Dan Caruso is a co-founder and CEO of Zayo Group.

said. “We’re taking on a little bit of extra work this time to separate these businesses to help unleash the value, but we think that’s a pretty small price to pay for the underlying value we’re getting.”

Zayo Canada is expected to have about $300 million in annual revenue, Caruso said. The voice/UC business unit should be about $200 million in revenue, and the small business unit $100 million. When asked if Zayo is parcelling out the other business units to sell off to competitors, Caruso said Zayo is not suggesting that right now.

“We will run them as if we will own them forever, that is fundamental to our belief system,” he says. “There should not be an expectation that we’re going to turn around and sell any portion of the business.”

Zayo expects that the acquisition will close by the first quarter of 2016 and it will be operating the Zayo Canada unit at that time.

Allstream considered offers from incumbents

Jay Forbes responds to questions from Pamela Ritchie on Bloomberg TV Canada's The Daily Brief.
Jay Forbes responds to questions from Pamela Ritchie on Bloomberg TV Canada’s The Daily Brief.

In an interview with Bloomberg TV Canada, MTS CEO Jay Forbes said that offers were considered from Canadian competitors for the sale of Allstream. But the $465 million offer from Zayo won the day.

Negotiating the deal as a federal election was taking place, Forbes says that a plan was made to envision the change in government after the election. Also, careful consideration was given to the regulatory bodies that need to approve the transaction.

We “structured the transaction so there are few regulatory approvals that will have to take place to confirm the transaction,” he said.

MTS is waiting to see what approach the Liberal government will take in terms of telecom policy, but has been encouraged by “the openness” enjoyed with the government so far, Forbes says. “Understanding those needs, understanding those requirements, and the expectations they have to entrust the communications of Canadians into another service provider.”

MTS will either put the expected $425 million in proceeds from the sale into paying down the debt accrued after acquiring wireless spectrum, otherwise reinvesting in the organization, or giving back to shareholders, he added.

Zayo’s customers

Zayo shared this slide detailing what its current customer base looks like:

Zayo customers

 



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