RCN to Acquire NEON Communications Group for up to $5.25 Per Share
June 25 2007 - 6:46AM
Business Wire
RCN Corporation (NASDAQ: RCNI) and NEON Communications Group, Inc.
(AMEX: NGI) today announced they have entered into a definitive
agreement for RCN to acquire NEON for up to $5.25 per share of NGI
common stock, in cash, for expected total consideration of up to
approximately $260 million. The transaction has been approved by
the Board of Directors of both companies, and is expected to close
during the fourth quarter of 2007, subject to regulatory approvals
and the approval of NEON�s stockholders as well as certain other
closing conditions described below. The transaction combines RCN, a
leading competitive provider of video, data, and voice services to
residential and business customers in the Northeast, mid-Atlantic,
and Chicago metro markets, with NEON�s pure play network transport
services to carrier and enterprise customers in the twelve-state
New England and mid-Atlantic regions. NEON offers RCN a
complementary network and a customer base that fits very well into
RCN Business Solutions� growth strategy. Pro forma for the quarter
ended March 31, 2007 (assuming that the transaction had closed on
January 1, 2007), combined RCN Business Solutions� annualized
Revenue and EBITDA would have been approximately $160 million and
$40 million, respectively, nearly twice the actual results of RCN
Business Solutions. These figures exclude an estimated $10 million
of expected revenue and expense synergies to be achieved during the
integration period following the closing of the transaction. In
addition, this acquisition expands RCN�s overall network footprint,
including over 1,000 combined on-net commercial locations, and
creating an opportunity to increase its addressable residential
homes in markets both inside and adjacent to its existing core
footprint. NEON brings to RCN: A densely built fiber optic network
with approximately 4,800 route miles, over 230,000 fiber miles, 22
colocation facilities, and more than 200 points of presence from
Maine to Virginia A facilities-based wholesale communications
provider that supplies high bandwidth fiber optic capacity and
comprehensive end-to-end telecom services to approximately 120
carrier and enterprise customers Unique fiber routes along utility
rights-of-way, expanding RCN�s commitment to diversity from the
legacy telecom infrastructure Complementary network and similar
sales approach, which will help facilitate integration and open up
new markets for RCN products Complementary customer base - NEON�s
carrier focus and RCN�s enterprise focus together offer enhanced
growth and sales opportunities Peter Aquino, President and Chief
Executive Officer of RCN added, �We are thrilled to be joining
forces with NEON and look forward to welcoming its customers and
team members to RCN. This is a significant strategic acquisition
for RCN that scales our high-value commercial segment with another
premier regional service provider in our own footprint. NEON brings
an extensive fiber network in New England and the mid-Atlantic with
diverse intercity fiber assets. This combination of NEON, ConEd
Communications and RCN�s existing metro and intercity rings will
now reach into both Tier 1 and Tier 2 markets for enterprise and
carrier customers who are looking for robust alternatives to
incumbent providers. Additionally, NEON�s dense capillarity
improves our ability to deliver seamless, high quality services and
creates significant growth potential. We are very excited about
combining RCN Business Solutions, under RBS President Felipe
Alvarez's leadership, with NEON, creating one of the best Regional
CLECs on the East Coast and in Chicago." Kurt Van Wagenen,
President and CEO of NEON Communications Group, said, "We are
pleased with this transaction and believe that it represents a good
outcome for our stockholders, customers and employees. NEON and RCN
have had a positive, long standing working relationship. Through
this merger, our customers gain access to an enhanced set of
services, additional on-net buildings and an expanded geography
including a network in Chicago and deeper capillarity in New York
City and Washington DC. The combined entity will have more than
14,000 route miles and more than 1,000 on-net buildings.� RCN
expects to fund the purchase price for the transaction with $250
million of debt financing, consisting of a combination of senior
secured term loans as well as unsecured borrowings, with the
remainder funded from its existing cash reserves. RCN has received
commitment from affiliates of Deutsche Bank to provide the full
$250 million of debt financing. Neither the acquisition nor the
additional debt financing require the consent of RCN�s existing
lenders. The transaction is expected to close during the fourth
quarter of 2007, subject to FCC and state regulatory approvals,
NEON�s stockholder approval, and NEON achieving minimum agreed-upon
revenue and EBITDA milestones during the second half of 2007. In
addition, assuming the required approvals are received and minimum
financial milestones are met, the purchase price could be reduced
by up to $0.10 per share if NEON does not meet supplementary
revenue targets specified in the agreement during the second half
of 2007. 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 acted as financial and legal
advisors to NEON. Non-GAAP Measures RCN believes that non-GAAP
financial measures such as EBITDA, viewed in addition to and not in
lieu of the Company�s reported GAAP results, provide useful
information to investors because they are an integral part of the
Company�s internal evaluation of operating performance. In
addition, they are measures that RCN uses to evaluate management�s
effectiveness. The EBITDA non-GAAP measure used by RCN may not be
comparable to similarly titled measures presented by other
companies. EBITDA is defined as operating income plus depreciation
and amortization, non-cash stock based compensation and other
special items including non-cash issuance of warrants, impairments
and other charges and cumulative effect of accounting changes. Free
cash flow represents EBITDA less capital expenditures, net interest
paid and net changes in working capital. About NEON Communications
Group, Inc. NEON is a facilities-based wholesale communications
provider, supplying high bandwidth fiber optic capacity and
comprehensive end-to-end telecom services to communications
companies and enterprise customers on an intercity, regional and
metro network in the 12-state Northeast and mid-Atlantic region.
With 4,800 route miles and over 230,000 fiber miles from Maine to
Virginia, NEON is providing unparalleled capillarity and central
office connectivity in the world's most demanding telecom market.
About RCN Corporation RCN Corporation, http://www.rcn.com, is one
of the largest facilities-based competitive providers of bundled
cable, high-speed internet and phone services delivered over its
own fiber-optic local network to residential customers in the most
densely populated markets in the U.S. RCN Business Solutions is a
growing business that also provides bulk video, high-capacity data
and voice services to business customers. RCN provides service in
the Boston, New York, Eastern Pennsylvania, Washington, D.C., and
Chicago metropolitan markets. (RCNI-G) RCN Forward-Looking
Statements A number of the matters discussed in this message that
are not historical or current facts deal with potential future
circumstances and developments, in particular, NEON�s future
financial results (including whether NEON will meet the revenue and
EBITDA milestones that are a condition to the closing), information
regarding RCN Business Solutions, including expected synergies
resulting from the merger of RCN and NEON, combined operating and
financial data, future plans, and whether and when the transactions
contemplated by the merger agreement will be consummated. The
discussion of such matters is qualified by the inherent risks and
uncertainties surrounding future expectations generally, and also
may materially differ from actual future experience involving any
one or more of such matters. Such risks and uncertainties include:
the result of the review of the proposed merger by various
regulatory agencies, and any conditions imposed on RCN in
connection with consummation of the merger; approval of the merger
by the stockholders of NEON and satisfaction of various other
conditions to the closing of the merger contemplated by the merger
agreement; and the risks that are described from time to time in
RCN�s reports filed with the SEC, including RCN�s annual report on
Form 10-K for the year ended December 31, 2006, as such reports may
have been amended. This message speaks only as of its date, and RCN
disclaims any duty to update the information herein. NEON Forward
Looking Statements. A number of the matters discussed in this
message that are not historical or current facts deal with
potential future circumstances and developments, in particular,
NEON�s future financial results (including whether NEON will meet
the revenue and EBITDA milestones that are a condition to the
closing), information regarding the new company, including expected
synergies resulting from the merger of RCN and NEON, combined
operating and financial data, future plans, and whether and when
the transactions contemplated by the merger agreement will be
consummated. The discussion of such matters is qualified by the
inherent risks and uncertainties surrounding future expectations
generally, and also may materially differ from actual future
experience involving any one or more of such matters. Such risks
and uncertainties include: the result of the review of the proposed
merger by various regulatory agencies, and any conditions imposed
on the new company in connection with consummation of the merger;
approval of the merger by the stockholders of NEON and satisfaction
of various other conditions to the closing of the merger
contemplated by the merger agreement; and the risks that are
described from time to time in NEON�s reports filed with the SEC,
including NEON�s annual report on Form 10-K for the year ended
September 30, 2006, as such reports may have been amended. This
message speaks only as of its date, and NEON disclaims any duty to
update the information herein. Additional Information and Where to
Find It. NEON will file a definitive proxy statement with the
Securities and Exchange Commission (SEC) in connection with the
proposed transaction. INVESTORS AND STOCK HOLDERS ARE ADVISED TO
READ THE DEFINITIVE PROXY STATEMENT AND ANY OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE TRANSACTION AND THE PARTIES THERETO. The
definitive proxy statement will be mailed to stockholders of NEON.
The definitive proxy statement and other documents filed by NEON
with the SEC will be available free of charge at the SEC�s website
(www.sec.gov), NEON�s website (www.neoninc.com) or from NEON
directly by making a request to NEON Communications Attention:
Investor Relations, 2200 West Park Drive, Westborough, MA 01581
(telephone: 508-616-7800). Participants in Solicitation. RCN, NEON
and their respective directors and executive officers and other
members of management and employees may be deemed to be
participants in the solicitation of proxies in respect of the
proposed merger. Information concerning RCN�s participants is set
forth in the proxy statement on Schedule 14A, dated April 27, 2007,
for RCN�s 2007 annual meeting of stockholders as filed with the
SEC. Information concerning NEON�s participants is set forth in the
proxy statement, dated January 29, 2007, for NEON�s 2006 annual
meeting of stockholders as filed with the SEC on Schedule 14A.
Additional information regarding the interests of participants in
the solicitation of proxies in respect of the merger will be
included in the proxy statement to be filed with the SEC.
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