Before Zayo Merger, Many Potential Suitors Approached AboveNet

Zayo Group LLC expressed interest in a purchase of AboveNet Inc. nearly a year before the two companies announced their plans to merge.

But Zayo didn’t make an offer for AboveNet in 2011, a regulatory filing shows. The two communications companies wouldn’t reach an agreement until March 2012.

Zayo was not the only company eying White Plains, N.Y.-based AboveNet. In fact, several private equity firms and telecommunications companies expressed their interest, a proxy statement from AboveNet reveals.  

It all started in January 2011 when AboveNet’s board commenced conversations about a potential sale. The next month, AboveNet retained J.P. Morgan as its financial advisor. J.P. Morgan soon contacted eight private equity firms, five of whom indicated their interest in pursuing an acquisition of AboveNet. A few of those firms indicated they were interested in bidding up to $80 per share for AboveNet, the regulatory filing shows. 

On April 18, 2011, AboveNet learned that one of the parties who had withdrawn from the process asked for a waiver under a confidentiality agreement to speak to Zayo about submitting a possible joint bid. A week later, AboveNet found out that its confidential discussions about a potential sale had been leaked to several clients of an investment bank.

Then, the top executives of a public telecommunications company and privately-held Zayo separately contacted AboveNet Chief Executive Bill LaPerch about a potential sale. Zayo’s Dan Caruso asked AboveNet to allow it to partner with a financial bidder to pursue financing in a potential acquisition.

LaPerch authorized the public telecom company to enter into confidential discussions with AboveNet, but that company’s board was concerned that granting Zayo’s request would disrupt the process. LaPerch later told “Caruso that the Company could not respond to market rumors, but that the company would consider an acquisition offer if one were made by Zayo.”

Zayo never submitted a proposal in 2011; however, the public telecom company indicated in early May 2011 it was interested in buying AboveNet for $85 per share in cash and stock.

On May 24, 2011, the news broke from the dealReporter that AboveNet had retained J.P. Morgan to explore a possible sale. Two days later, the company was contacted by another public telecom/cable company. Others also expressed interest. The floodgates had opened.

Interest in AboveNet didn’t subside in early 2012. In fact, a private equity firm and a foreign pension fund were jointly negotiating for a purchase of the company. Zayo also was in the hunt, and Caruso let it be known on March 1 that the company was in a position to make an offer.

“Later that day, Mr. Caruso sent Mr. LaPerch a letter offering to acquire the company for $80 per share in cash, along with executed debt financing commitments,” AboveNet revealed in the proxy statement.

For the next few weeks, AboveNet continued negotiations with Zayo and the private equity firm/foreign pension fund. On March 16, a few days before the merger was announced, Zayo increased its offer to $84 per share.

AboveNet’s agreement with Zayo included a “go-shop” clause that allowed AboveNet to solicit alternative proposals. J.P. Morgan subsequently contacted 52 parties to ascertain their interest in exploring a potential purchase of AboveNet. However, only one party entered into a confidentiality agreement with AboveNet, and no one submitted an alternative proposal before the go-shop provision expired on May 2.

Zayo, based in Louisville, Colo., appears to be close to completing the $2.2 billion acquisition.

On June 5, 2012, AboveNet’s shareholders approved the proposal to adopt the merger. They stand to receive $84 in cash for each share of common stock. That price reflects a premium of 21 percent to the average closing price of the company’s common stock for the 60 days ending March 16, 2012.

Still, some shareholders aren’t happy with the deal. AboveNet, members of its board of directors and Zayo face lawsuits in connection with the merger. The lawsuits seek damages and an order barring the merger.

“The defendants deny the allegations in the actions and intend to defend the actions vigorously,” AboveNet said in the proxy statement.

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