Corvis Communications Corp., which sells network equipment and telecommunications services, agreed yesterday to buy closely held Focal Communications Corp. for $101 million in stock and $109 million in assumed debt.
With the deal, Corvis is adding a local-telephone network with 4,000 customers, the Columbia company said in a statement. Its shares rose 6 percent.
Chief Executive Officer David Huber is transforming Corvis into a phone carrier after sales of fiber-optic gear slumped. Last year, he bought the long-haul network of the former Broadwing Inc. The purchase of Focal, which emerged from bankruptcy last year, will help Corvis pare network-access costs by giving it a local service that sells to businesses and to other phone providers.
"They can become a full solutions provider," said Vik Grover, an analyst at Needham & Co. in New York, who has a "buy" rating on Corvis and doesn't own the shares. "They get revenue synergies by cross-selling each other's products."
Corvis rose 11 cents to close at $2.04 on the Nasdaq stock market yesterday. The stock is down from a high of $114.75 in August 2000.
Grover said Corvis could save $30 million to $40 million a year because it will be able to route traffic on Focal's local network instead of paying other carriers for such access.
Focal sells local and long-distance calling, Internet access and private networking in 23 markets, including New York, Los Angeles and Chicago. It's mainly a provider of voice services, while data accounts for most sales at Corvis' Broadwing unit, spokesman Andrew Backman said. Broadwing had 2003 sales of $310.2 million; Corvis' equipment unit had sales of $4.1 million.
Chicago-based Focal expects to report sales of about $320 million last year, down from $328.5 million in 2002. As of Dec. 31, the company had cash and equivalents of $24.9 million.
Madison Dearborn Partners, Frontenac Co., Battery Ventures and Great Hill Partners own 80 percent of Focal, according to Focal spokeswoman Dawn Benchelt.