05.15.2005
First Avenue, FiberTower Merge in $1.8B Deal
By ROGER CHENG
NEW YORK -- First Avenue Networks Inc. (FRNS) and FiberTower Corp. have agreed to merge in an effort to expand each others' ability to provide transport services to wireless carriers.
Under the terms of the deal, First Avenue will issue roughly 73.7 million shares of stock to shareholders of privately held FiberTower, giving them 51% of the combined company and essentially doubling the number of outstanding shares. Based on market prices, the combined company would be worth a little more than $1.8 billion.
The new company will use the FiberTower name and trade on the Nasdaq Stock Market under a new ticker. The deal is expected to close in the third quarter. At that time, First Avenue Chief Executive Michael Gallagher will take the reins as CEO.
"There's a huge macroeconomic move to upgrade the wireless network," he told Dow Jones Newswires. "It's putting pressure on the backhaul market. It's a very large and fast-growing market place."
Backhaul refers to a segment of the wireless network between the cellular towers and the central office. Wireless carriers typically use the existing copper or fiber lines laid underground for backhaul transport, but there has been growing interest in using alternative technologies, such as FiberTower and First Avenue's microwave antenna systems, as more traffic travels through the network.
While their businesses are similar, both companies insist there is little overlap. FiberTower mainly deals with the suburban and rural markets, while First Avenue addresses the urban and metropolitan market. In the one market they share, New York, First Avenue works in the downtown Manhattan area, while FiberTower serves outlying regions such as Brooklyn.
"One of the beauties of this deal is there are no overlaps," Gallagher said.
For First Avenue, McLean, Va., a deal will help solidify its position in the eyes of its potential customers. While the wireless carriers liked its technology and products, many were concerned over the operational risks.
FiberTower, meanwhile, had a more solid track record with a service that has been running for years. In addition to a controlling stake in the combined entity, the San Francisco company will be able to use First Avenue's licensed spectrum to expand the range of its existing microwave dishes, making it an attractive prospect for customers.
"Together, it allows us to go deeper on a market by market basis," said FiberTower Chief Executive Scott Brady, referring to the increased number of sites it can serve.
The wireless carriers' drive to offer more services such as video clips and music downloads is stretching the network's capacity. As a result, many companies are starting to offer backhaul services to augment that capacity, from microwave dishes to the use of lasers. The initial feedback from customers on the merger have been positive, Gallagher said.
"It's an enormous market," he said. "We're looking to accelerate our lead in this market." Shares of First Avenue rose $3.30, or 34.2%, to $12.96, on volume of 2.1 million compared to average daily volume of 227,000.
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