Verizon Puts Up $1.8B for XO’s Fiber Business

Deal for Icahn-Backed XO Unit to Shore Up Verizon’s Enterprise Biz
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Verizon Communications said Monday that it has inked a $1.8 billion deal to acquire XO Communications’ fiber-optic network business.

According to XO’s most current corporate overview document (PDF), its network spans about 20,000 route miles, 1.2 million metro fiber miles, more than 4,000 on-net buildings, and north of 1,000 central offices.

Tied into the deal, Verizon will also simultaneously lease available XO wireless spectrum, with an option to buy XO’s entity that holds its spectrum, by the end of 2018.

Verizon said the fiber-facing part of the deal will enable it to better serve enterprise and wholesale customers, and to add density to its cellular network.

That deal enters play as Verizon and other telcos come under increased competition for business customers from cable operators. Among them, Comcast, which recently launched a unit focused on striking deals with Fortune 1000 companies, saw business services revenues climb 18.9%, to $1.3 billion in Q4, establishing an annual run-rate of $5.2 billion.  Speaking on  Comcast’s Q4 earnings call earlier this month, Michael Cavanagh, Comcast’s SVP and CFO, said Comcast has more than 20 large enterprise customers on board and multiple “eight-figure deals” already signed.

Carl Icahn, chairman and sole shareholder of XO Holdings, said XO has travelled a “bumpy road” after he helped to bring it out of bankruptcy about 13 years ago.

“In 2001, I began purchasing the senior debt of XO, and the following year the company filed for bankruptcy,” Icahn said, in a statement. “I then worked diligently with other stakeholders to keep XO alive, and in 2003 the company emerged from bankruptcy. The following thirteen years were a bumpy road for XO, as well as other telecoms, as we reckoned with major network overcapacity and other issues caused by overly optimistic projections and capital expenditures made by previous owners. In fact, we had to inject additional capital into the company several times over those years to keep it operating. Although this sale to Verizon does not represent a significant annualized return on our investment, we believe that in today’s environment it does represent the best achievable outcome for the company’s customers, employees and owner.”  

Verizon said it expects to close the deal in the first half of 2017. XO will continue to operate independently as the deal seeks regulatory approvals.

Citigroup acted as financial adviser and Debevoise & Plimpton LLP acted as legal adviser to Verizon. Evercore is serving as XO’s financial advisor on the deal and Thompson Hine LLP is its legal advisor in connection with the transaction.