CAIS Internet Jumps 18% on KKR Investment

The investment banking firm may invest up to $200 million in the high-speed Internet access provider.
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Shares of

CAIS Internet

(CAIS)

jumped 18% Tuesday after it announced that the investment banking firm

Kohlberg, Kravis Roberts

would invest up to $200 million in the company.

The investment could ultimately give KKR a 26.4% stake in CAIS, a high-speed Internet access provider, and the firm will initially take two seats on the company's eight-member board. CAIS, which is based in Washington, went public seven months ago.

Shares of CAIS rose 3 9/16 to close at 23 11/16.

CAIS currently has exclusive, long-term arrangements to provide broadband Internet access to more than 9,000 hotels and 1.1 million hotel rooms.

"The point is that we're providing broadband where it doesn't exist in apartments and hotels," said Gary Rabin, executive vice president of finance and strategic planning.

"We're targeting hotels where 80% of the rooms are occupied by business travelers," he said in an interview.

CAIS, in return, charges about $10 a day of use for its hotel room service.

"When CAIS went public we didn't really have a big financier behind the company," Rabin said. "We went out to find a successful and smart partner in the business, and KKR is the best in the business."

Under the terms of the agreement, KKR will buy $100 million in convertible preferred stock, with a conversion price of $16.50. The investment firm could also opt to buy an additional $100 million of convertible preferred stock with the conversion price of $20 a share.

"KKR's investment will enable us to ramp up our growth plans in the hospitality and apartment markets, both of which offer accelerating opportunities for our patented, simultaneous telephone and high-speed Internet access solutions," Ulysses G. Auger II, chief executive officer of CAIS Internet.

KKR will make an initial investment of $100 million for convertible preferred stock representing a 16.5% stake in CAIS on a fully diluted basis. The stock is convertible at $16.50 a share.

KKR also has a one-year option to buy an additional $100 million of convertible preferred stock, with a conversion price of $20 a share. By exercising that option, KKR would increase its stake to 26.4% and get a third seat on the CAIS board.

The cash infusion follows a deal by CAIS to provide 209 guest and meeting rooms in

Prime Hospitality

properties with high-speed Internet access. These include its proprietary

AmeriSuites

and

Wellesley Inn & Suites

chains.

CAIS's customers include

Hilton Hotels

(HLT) - Get Report

,

Carlson Worldwide Properties

and

Bass Hotels

, the parent company of

Radisson

,

Embassy Suites

,

Doubletree Suites

,

Ramada

and

Holiday Inn

.

Rabin said CAIS' patented

OverVoice

technology was appealing to business travelers. "You can use the existing telephone line to use the Internet and the phone at the same time," he said.