In an aggressive move to expand its digital subscriber line services beyond
major metropolitan service areas, Covad
Communications Inc. Friday reached a definitive agreement to acquire
privately-held BlueStar Communications
Nashville-based BlueStar Communications provides broadband and Internet
services to small and medium-sized businesses throughout the Southeastern U.S.
The all-stock transaction is valued at $202 million. The deal calls for
eight million shares of Covad
common stock plus the
assumption of BlueStar’s existing debt. Up to five million additional Covad
shares may be issued to the BlueStar stockholders if certain performance
targets are met by the end of next year.
Looking to tap into historically underserved markets, Covad has an
opportunity to enhance its operating margins in less competitive areas in
Robert E. Knowling Jr., Covad president, chairman and chief executive
officer, said the deal is an extension of its small business broadband
“We have installed well over 100,000 broadband lines and the key to scaling
our business and installing millions of lines is to rapidly expand our
network footprint and the way we deliver broadband services,” Knowling
said. “Acquiring BlueStar will allow us to accelerate our nationwide
deployment, increase our distribution methods, and deliver enhanced
broadband solutions to small businesses.”
BlueStar offers DSL connections from more than 250 central offices located
in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North
Carolina, South Carolina and Tennessee.
Robert E. Dupuis, BlueStar chairman, said being acquired by Covad would
enable it to align with the nation’s leading broadband DSL company.
“We are looking forward to integrating our businesses so that we can
quickly and more efficiently bring turnkey broadband solutions to small and
medium-sized businesses in smaller, under-served areas,” Dupuis said.
When BlueStar is integrated into Covad’s DSL network, Covad will be able to
reach more than 40 percent of all homes and 44 percent of all businesses in
the nation. On a combined basis, Covad will be able to provide broadband
services out of more than 1,800 central offices throughout the country.
Covad’s Knowling said its goal is to provide homes and businesses with more
choice in how they get broadband service, and enhance the company’s bottom
“By taking advantage of BlueStar’s sales approach, we will be able to
better serve the needs of small businesses in secondary and tertiary
markets in the Southeast, Knowling said. “This direct sales model will
increase total revenues by adding higher revenue lines to the business mix,
but will lower our 2000 line growth to roughly 330 percent and reduce 2001
line growth to roughly 150 percent.”
“We expect this tradeoff will generate higher company revenues and higher
returns on installed lines for our shareholders,” Knowling added.
In conjunction with the acquisition announcement, BlueStar intends to
withdraw its registration with the Securities
and Exchange Commission for an initial public offering.
The companies anticipate closing the transaction within 60 to 120 days
subject to regulatory approvals and other customary closing conditions.
BlueStar will operate as a wholly owned subsidiary and BlueStar head Robert
E. Dupuis will continue to lead the business unit.