Intermedia rises on takeover report

Busy traders drive up the Tampa telecom provider's stock after a news report says it is negotiating with a Cincinnati company.

By ROBERT TRIGAUX

© St. Petersburg Times, published June 9, 2000

TAMPA -- Shares of telecommunications provider Intermedia Communications Inc. soared as much as 30 percent and trading surged to 10 times its average volume Thursday after a report that Cincinnati-based Broadwing Inc. is in talks to buy the Tampa company.

No agreement was announced and neither company would comment on a possible deal. Intermedia traded more than 12-million shares and closed at $41.63, up $5.81, or 16 percent. But Broadwing dipped 13 percent to close at $22.44.

CNBC television reporter David Farber, citing unnamed sources, reported the talks and said the two companies' boards of directors were meeting this weekend to continue negotiations.

Intermedia is no stranger to buyout rumors, and chief executive David Ruberg has said that his company is obligated to look at any serious offer. But the name of Broadwing as an alleged suitor and the market response combined for the most specific takeover scenario yet.

Intermedia, a fast-growing but money-losing provider of voice and data communications services to businesses, was started in 1987 and went public in 1992. One of Intermedia's business gems is Maryland-based Digex Inc., an Internet Web-hosting company. Intermedia controls 60 percent of Digex, whose clients include J. Crew Group Inc., United Airlines and J.P. Morgan.

Broadwing was formed through the November combination of Cincinnati Bell Inc. and national data network provider IXC Communications Inc. in Austin, Texas. It has been looking to make acquisitions to help it become a national provider of telecommunications services similar to those of Intermedia.

A prominent investor in Broadwing is Texas billionaire Robert Bass. His Oak Hill Capital Partners invested $400-million last fall in the new Broadwing. Oak Hill Capital managing partner J. Taylor Crandall is a member of Broadwing's board of directors.

Intermedia has its own heavyweight investor. In January, an affiliate of New York's Kohlberg Kravis Roberts & Co. agreed to invest $200-million directly in Intermedia for a 9 percent stake.

Of the two companies, Broadwing is substantially bigger. As of Thursday, Broad-wing's market value was $4.8-billion, more than twice Intermedia's $2.2-billion.

Analysts said a merger could create a perfect match within the telecommunications industry because each company harbors unique assets.

"From a strategic standpoint, it makes a lot of sense," said analyst John Hodulik of PaineWebber. "You're combining a company (Broadwing) that has an extensive broadband nationwide network with a company (Intermedia) that is more focused on local service and has the local infrastructure in the Eastern and Southeastern United States."

"Broadwing has been saying we want local properties with local customers, and we want Web hosting and data services to add to our portfolio," said CIBC World Markets Corp. analyst Cannon Carr, who reiterated his "strong buy" rating on Intermedia.

The analyst said Intermedia could be bought for $65 to $80 a share, factoring in the company's majority stake in Digex.

Information from Times wires was used in this report.

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