RCN acquires Neon Communications

RCN has agreed to acquire Neon Communications for about $260 million in cash, expanding the carrier’s reach and presence in the Northeast.

Neon, a provider of wholesale and business retail telecom services throughout the Northeast and Mid-Atlantic, gives RCN, the cable operator turned triple-play provider, a 4800-route-mile fiber network with 22 collocation facilities and more than 200 points of presence between Maine and Virginia. With the addition of Neon, RCN’s network will span more than 14,000 route miles and reach more than 1,000 buildings.

Neon also has about 120 customers, a mix of both carriers and enterprises. RCN expects the move to essentially double the revenue from its business services unit. (Combined, the two operations would have reported $160 million in revenue for this year’s first quarter, RCN said.) It also expects to generate about $10 million in synergies after the deal closes in the fourth quarter.

The combination of RCN and Neon will create “one of the best regional [competitive local exchange carriers] on the East Coast and in Chicago,” Peter Aquino, RCN’s Chief Executive Officer, said in a statement released today.

Neon, whose 2004 merger with Globix made it a public company, reported more than $173 million in total assets and more than $38 million in liabilities at the end of March. It claimed nearly $19 million in revenue for the first quarter (up 15% from a year earlier) and a $761,000 net loss (a 66% improvement from a year earlier). It had accumulated a deficit of nearly $91 million, with more than $23 million in cash and equivalents and essentially no long-term debt.

Late last year, Neon sold the hosting business once run by the Globix side of the house for $20 million in order to pay down its debt. And in February of this year, the company changed its name from Globix to Neon, focusing solely on regional network transport services.

Ninety percent of Neon’s revenue comes from a variety of Sonet- and Ethernet-based transport services. Another 6% comes from dark fiber sales, and the remaining 4% come from collocation services.

RCN’s purchase price of $5.25 per share is subject to change. If Neon fails to meet certain revenue targets in the second half of this year, the price could be reduced by as much as $0.10 per share, potentially bringing the total price down to about $25