Three investment firms line up to buy Zayo: Reuters

Reuters reported yesterday that Digital Colony Partners LP, EQT AB, and Stonepeak Infrastructure Partners have received exclusive rights to negotiate an acquisition of fiber-optic network services provider Zayo Group Holdings (NYSE: ZAYO). Last month Starboard Value LP, an activist hedge fund with a 4% ownership stake in Zayo, revealed that it had pressed the company’s board to investigate such a sale or, at the very least, improve execution.

Zayo owns and operates a 130,865-mile fiber-optic network in North America and Europe, through which it offers dark fiber, managed bandwidth services, and lit fiber offerings including wavelength, Ethernet, IP, and video. The company developed much of the network via a long string of acquisitions – 45 of them, by Starboard’s count. It also offers colocation and related data center services via its zColo business unit.

Zayo management on March 6 issued a press release stating that they were canceling a March 14 Analyst Day because they were “evaluating strategic alternatives that may enhance shareholder value.” Starboard responded the next day with a letter to Zayo’s management, signed by Managing Member Peter A. Feld, that suggested the company was undervalued and poorly managed. It also referenced discussions of these concerns “over the past several months” and urged the Zayo board to “remain open minded about all potential options, including a sale of the Company.”

Zayo leadership has explored several strategies to increase value and improve operations. This includes an announcement last November that it would split itself in two and convert its infrastructure business into a real estate investment trust (REIT; see “Zayo to split in two”). However, the company announced in February 2019 that it had changed its mind about the split.

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