Report: Birch selling off cloud, business operations for $280M to Fusion Telecom

merger and acquisition
Birch Communications is selling its cloud and business services divisions to Fusion Telecommunications.

Birch Communications is selling its cloud and business services divisions to Fusion Telecommunications for about $280 million in stock, creating a company with a sizeable set of fiber and data center assets to target business customers.

Upon completion, this deal would create a combined company with an enterprise value of $950 million, according to people familiar with the matter.

The agreement, according to a Reuters report citing sources familiar to the two companies, does not include Birch’s less profitable legacy consumer business line.  

If this deal is actually consummated, the new company would be become one of the largest North American cloud providers, with over 150,000 business customers 30 data centers and 31,000 miles of fiber.

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Matthew Rosen, CEO of Fusion, is set to lead the combined company and become chairman. The Reuters report did not indicate what role current Birch CEO Tony Tomae would play in the new company.

Fusion, according to Reuters, will pay Birch with its own stock. Under the terms of the agreement, Birch shareholders, led by majority owner Birch Equity Partners, will get 73 million Fusion shares, together worth about $281 million or $3.85 per share, and a premium of more than 200% compared to the end of trading on August 25.

Sources added Fusion will also assume Birch’s existing debt of $458 million, which it will refinance together with its own debt of about $101 million.

If a deal is completed, Fusion shareholders will own 25% of the combined company, while Birch shareholders will own 75%.

Birch did not respond to FierceTelecom’s request for comment.

For Birch, a merger with Fusion reflects the service provider’s ongoing move to expand its presence in the cloud services space. After reemerging from two bankruptcies, the service provider had embarked upon an aggressive acquisition campaign starting in 2003 to build out the size of the company's IP network. In all, the service provider has purchased over 24 other service providers, including Cbeyond and Primus.

By acquiring Cbeyond for $323 million in 2014, Birch was able to expand its services to small- and medium-size businesses. At the same time, the service provider continued to enhance its metro fiber network.

In 2015, the service provider added 80,000 buildings across its 22-state footprint, deepening its on-net building fiber reach to over 400,000 fiber-fed buildings. However, the service provider obtained this on-net fiber scale through a mix of its own direct builds and purchasing long-term dark fiber indefeasible rights of use (IRUs) from other network partners.

Fusion has not been shy on the M&A front either. The service provider acquired business communications provider Apptix in 2016 for $28 million.

From a broader trend perspective, Fusion’s M&A plans will help establish it as a greater competitive threat to incumbent telcos AT&T and Verizon in the business segment.

A further shake up will come when CenturyLink completes its acquisition of Level 3 after getting final state regulatory approvals.

This article was updated on Aug. 28 with the correct purchase price.