Zayo has long intended to dispose of its Allstream segment, according to MoffettNathanson Senior Analyst, Nick Del Deo. Separating, standing up, and eventually getting rid of the non-communications infrastructure parts of the Allstream and Electric Lightwave acquisitions, he said, was part and parcel of those deals: acquire diamonds in the rough, clean them up, and be left with polished gems.
“So, we’re back to where we started,” Del Deo said. “Sort of.”
With its Q3 2018 earnings report, he said, Zayo surprised the market with its plan to split the company in two, moving a chunk of what had been deemed communications infrastructure revenue into Allstream and spinning off the enlarged entity as a public company.
Just a few weeks ago, with its Q4 2018 earnings report, Zayo scrapped its intention to split the company and instead reverted to something more akin to its original plan, albeit with a new twist: zColo, Zayo’s data center unit, is now being positioned for a potential sale or combination with another co-location provider.
“We don’t know if Zayo will ultimately be sold,” Del Deo said, “but would ascribe lower odds to a sale than most observers. Even if one ascribes far higher odds to a deal than we do, it’s still critically important to understand Zayo’s go it alone valuation since a transaction is far from certain. An important part of a go it alone valuation is determining whether there’s enough value embedded in zColo to move the needle if that unit is divested.”
March 7, 2019
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