Zayo announced plans to split into two companies, focused on respectively network infrastructure and managed services for enterprise customers. The break-up will open up a path for the infrastructure company to become a real-estate investment trust (REIT) with increased dividends and tax benefits. The company said already in May that it was considering REIT status and a possible separation of its Allstream business.
Zayo Infrastructure, the 'InfraCo', will be a fibre-focused infrastructure provider with networks and geographic reach throughout North America and Western Europe. InfraCo will be comprised of the current Fiber Solutions and zColo business segments, along with the Wavelength and IP Transit businesses of Zayo’s current Transport segment. This business will own and operate Zayo’s Tier One IP backbone as well as the Media Networks platform that serves its video customers. InfraCo will continue to be led by Dan Caruso, Zayo’s chairman and CEO.EnterpriseCo will have a product portfolio and customer base centered on higher bandwidth connectivity to enterprise locations, including to public cloud and SaaS providers, that will be sold both directly to enterprise customers and wholesale through a carrier-focused channel. It will be comprised of the current Enterprise Networks and Allstream segments, along with the SONET and Ethernet businesses of Zayo’s current Transport segment. The company will be led by newly named COO Mike Strople, current president of Zayo’s Allstream Segment, and Tyler Coates, SVP of Zayo’s existing Enterprise Segment.
The separation remains subject to board and regulatory approval. Zayo expects to complete the changes in late 2019, after which Zayo shareholders will own shares of both companies.
Lower quarterly results
Zayo also reported results for the third quarter, showing revenues down 10 percent to USD 641 million and adjusted EBITDA down 5 percent to USD 319 million. The infrastructure business accounted for USD 536 million in revenue and and EBITDA of USD 299 million, while the Allstream business had EBITDA of USD 20.8 million on revenues of USD 105 million.
Zayo's net profit nearly halved to USD 22.1 million from USD 42.8 million a year ago. Levered free cash flow rose to USD 59.3 million from USD 43.8 million.
New board members
In addition, Zayo announced that Scott Drake has been elected by shareholders and Yancey Spruill has been appointed by the board to the company’s board of directors, effective 07 November. Drake is replacing Nina Richardson, whose term expired, and Spruill is replacing Phil Canfield, who resigned following the November board meeting, after completing a six-year tenure and GTCR’s sale of its Zayo shareholding in the summer of 2018.
