agreed to acquire OnFiber Communications, a maker of networking products, for $107 million.
Privately held OnFiber operates an all-optical communications network in 23 cities over the Ethernet, Sonet and Wavelength protocols. The company is expected to generate revenue of $60 million this year, up from $40 million in 2005, from a customer base that spans media and entertainment, financial services, software and health care.
"Qwest currently provides similar solutions to metropolitan areas within its 14-state operating region, and this acquisition deepens Qwest's already significant out-of-region metropolitan coverage while meaningfully reducing third-party access costs," the company said. "Qwest's nationwide MPLS backbone network extends throughout the United States and carries nearly 4 billion voice-over-Internet Protocol minutes per month."
The acquisition should allow $25 million of annual run-rate expenses to be cut, "most significantly in the elimination of overlapping facilities and the reduction of network access costs," Qwest said. Qwest expects the transaction to be accretive to EBITDA and free cash flow starting next year.
"We expect the Ethernet market will grow upwards of 50% annually; Ethernet has been a high-growth product for us in-region, and this increases our participation nationally," Qwest said. "For Qwest, this expands our penetration in key markets throughout the country, while reducing last-mile costs. It absolutely fits our criteria for a return-focused acquisition."
Qwest closed at $6.48 Friday.