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RCN to Buy NEON for $260 Million

Virginia-based RCN Corp. said on Monday it will buy NEON Communications Group for up to $5.25 per share in a deal totaling approximately $260 million.

Both companies boards have approved the acquisition, which should close in the fourth quarter.

RCN is one of several CLECs that offers video services, along with voice and data. It competes against Verizon Communications Inc., creator of the much-hyped FiOS TV and Internet product. Buying NEON, a retail and wholesale service provider, gives RCN complementary network assets and customers, RCN said.

The planned acquisition also is further evidence of the cable industrys increased focus on the business market. Cable operators are taking telcos consolidation and IPTV focus as a sign that the SMB market is wide open for new entrants.

RCN serves residential and business customers in the northeastern United States, the mid-Atlantic and Chicago. NEON, formerly Globix Corp., covers 12 states in New England and the mid-Atlantic. Its fiber-optic network includes 22 colocation facilities and more than 200 PoPs from Maine to Virginia.

RCN expects to pay for the acquisition with $250 million of debt financing and $10 million in cash. The purchase price could go down by 10 cents per share if NEON doesnt meet its revenue targets for the second half of 2007. Affiliates of Deutsche Bank have agreed to fund the $250 million.

Deutsche Bank Securities Inc. and Andrews Kurth LLP acted as financial and legal advisors to RCN, and The Bank Street Group LLC and Clifford Chance US LLP served as financial and legal advisors to NEON.

RCN raised eyebrows earlier this year when it said it would sell its business operations in San Francisco to a rival cableco. Some in the industry feared the company would shrink its footprint and service portfolio. Those fears, however, have not materialized.

RCNs stock rose 26 cents on the acquisition news to $18.80 during mid-morning trading. NEON shares were down a penny to $4.99.

NEON Communications Group

RCN Corp. www.rcn.com

 


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