UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.)*
FiberNet Telecom Group, Inc.
(Name of Issuer)
Common Stock, par value $0.001 per share
(Title of Class of Securities)
315653402
(CUSIP Number)
Steven J. Pully, Esq.
Carlson Capital, L.P.
2100 McKinney Avenue, Suite 1600
Dallas, TX 75201
(214) 932-9600
with a copy to
Peter Halasz
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
(212) 756-2000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
June 3, 2009
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box. [x]
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7 for other parties
to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 13 Pages)
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 2 OF 13 PAGES
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1 NAMES OF REPORTING PERSONS
Double Black Diamond Offshore Ltd.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE
INSTRUCTIONS)
(a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
WC
--------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
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7 SOLE VOTING POWER
NUMBER OF 699,714
-------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY -0-
-------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 699,714
-------------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
-0-
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
699,714
--------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES (SEE INSTRUCTIONS)
[ ]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.1%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 3 OF 13 PAGES
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1 NAMES OF REPORTING PERSONS
Black Diamond Offshore Ltd.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE
INSTRUCTIONS)
(a) [ ]
(b) [ ]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
WC
--------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 74,486
-------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY -0-
-------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 74,486
-------------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
-0-
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
74,486
--------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES (SEE INSTRUCTIONS)
[ ]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.0%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 4 OF 13 PAGES
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1 NAMES OF REPORTING PERSONS
Carlson Capital, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE
INSTRUCTIONS)
(a) [ ]
(b) [ ]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
WC
--------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 774,200
-------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY -0-
-------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 774,200
-------------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
-0-
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
774,200
--------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES (SEE INSTRUCTIONS)
[ ]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.1%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
PN, IA
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 5 OF 13 PAGES
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1 NAMES OF REPORTING PERSONS
Asgard Investment Corp.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE
INSTRUCTIONS)
(a) [ ]
(b) [ ]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
WC
--------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 774,200
-------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY -0-
-------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 774,200
-------------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
-0-
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
774,200
--------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES (SEE INSTRUCTIONS)
[ ]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.1%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 6 OF 13 PAGES
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1 NAMES OF REPORTING PERSONS
Clint D. Carlson
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE
INSTRUCTIONS)
(a) [ ]
(b) [ ]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
WC
--------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S. Citizen
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 774,200
-------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY -0-
-------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 774,200
-------------------------------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
-0-
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
774,200
--------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES (SEE INSTRUCTIONS)
[ ]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.1%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
IN
--------------------------------------------------------------------------------
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 7 OF 13 PAGES
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Item 1. Security and Issuer.
This statement on Schedule 13D relates to the shares ("Shares") of
common stock, par value $0.001 per share, of FiberNet Telecom Group, Inc. (the
"Issuer"). The principal executive office of the Issuer is located at 220 West
42nd Street, New York, New York 10036. The Reporting Persons, as defined in Item
2 herein, have previously filed on Schedule 13G with the Securities and Exchange
Commission (the "Commission"), but due to recent events, as more fully described
in Item 4 herein, wish to file on Schedule 13D with the Commission.
Item 2. Identity and Background.
(a) This statement is filed by: (i) Double Black Diamond Offshore
Ltd., a Cayman Islands exempted company ("Double Offshore Ltd."), (ii) Black
Diamond Offshore Ltd., a Cayman Islands exempted company ("Offshore Ltd.", and
together with Double Offshore Ltd., "the Funds"), (iii) Carlson Capital, L.P., a
Delaware limited partnership ("Carlson Capital"), (iv) Asgard Investment Corp.,
a Delaware corporation and the general partner of Carlson Capital, ("Asgard"),
and (v) Mr. Clint D. Carlson, President of Asgard and of Carlson Capital
(collectively, the "Reporting Persons"). The name, citizenship, present
principal occupation or employment and business address of each director and
executive officer of Asgard are set forth in Appendix B attached hereto.
(b) The principal business address of each Reporting Person is 2100
McKinney Avenue, Suite 1600, Dallas, TX.
(c) The principal business of the Funds is to invest in securities.
The principal business of Carlson Capital is serving as the investment manager
to the Funds and to a managed account (the "Account"). The principal business of
Asgard is serving as the general partner of Carlson Capital.
(d) None of the Reporting Persons or persons listed on Appendix B
has, during the last five years, been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors).
(e) None of the Reporting Persons or persons listed on Appendix B
has, during the last five years, been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws or finding any violation with respect to such laws.
(f) Mr. Carlson is a citizen of the United States.
Item 3. Source and Amount of Funds or Other Consideration.
The Shares reported herein were acquired at an aggregate purchase
price of approximately $6,426,339.69 including commissions. The Shares were
acquired with working capital of the Funds and the Account.
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 8 OF 13 PAGES
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ITEM 4. PURPOSE OF TRANSACTION
The shares of Common Stock currently held by the Reporting
Persons were purchased based on a belief that such securities, at their
respective times of purchase, were undervalued and represented an attractive
investment opportunity. The Reporting Persons were originally passive investors
entitled to report their holdings on Schedule 13G; however, due to events of
late taken by the Issuer's Board of Directors (the "Board") and management, the
Reporting Persons have changed their intent with respect to the Issuer.
Specifically, the Reporting Persons do not believe the current offer by Zayo
Group, LLC ("Zayo") to acquire all of the outstanding shares of Common Stock for
$11.45 per share, pursuant to an Agreement and Plan of Merger ("Plan of
Merger"), dated as of May 28, 2009 reflects the fair underlying value of the
Issuer. On June 8, 2009, Carlson Capital, as the beneficial owner of the shares
of Common Stock owned by the Reporting Persons, delivered a letter to the Issuer
opposing the Plan of Merger between the Issuer and Zayo (the "June 8 Letter").
The June 8 Letter stated, among other things, that the offer price is far below
the Issuer's intrinsic value, which Carlson Capital believes has been
historically depressed due to factors such as limited trading liquidity. The
Reporting Persons believe that the offer of $11.45 will not adequately
compensate the Issuer's shareholders. A copy of the June 8 Letter is attached as
Exhibit 2 hereto and is incorporated by reference.
Accordingly, the Reporting Persons are opposed to the proposed
merger on its current terms and reserve the right to take any and all actions
the Reporting Persons deem appropriate in their capacity as stockholders
relating to the merger, including exercising dissenters' rights pursuant to
Section 262 of the Delaware General Corporation Law.
Except as set forth herein, the Reporting Persons have no present
plan or proposal that would relate to or result in any of the matters set forth
in subparagraphs (a)-(j) of Item 4 of Schedule 13D. The Reporting Persons
reserve the right, however, to take any and all actions as they deem appropriate
with respect to their investment, including, without limitation, making
proposals to the Issuer and its shareholders concerning the capitalization and
operations of the Issuer, communicating with other stockholders, conducting
solicitations or withhold campaigns under the proxy rules, purchasing additional
Common Stock in the open market, in private transactions or through proposals to
the Issuer and its stockholders, selling some or all of their Common Stock,
engaging in short selling of or any hedging or similar transaction with respect
to the Common Stock or changing their intention with respect to any and all
matters referred to in Item 4. The Reporting Persons may in the future submit to
the Issuer nominations of directors for election to the Board of Directors or
stockholder proposals as and to the extent permitted by, and subject to the
limitations contained in, the Issuer's certificate of incorporation and bylaws.
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 9 OF 13 PAGES
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ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) As of the close of business on June 8, 2009, the Reporting
Persons beneficially owned an aggregate of 774,200 Shares, constituting
approximately 10.1% of the Shares outstanding.
The aggregate percentage of Shares beneficially owned by the
Reporting Persons is based upon 7,667,368 Shares outstanding, which is the total
number of Shares issued and outstanding as of May 15, 2009 as reported in the
Issuer's Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2009.
(b) Carlson Capital, Asgard and Mr. Carlson have the power to
vote and direct the disposition of (i) the 74,486 Shares reported herein as
owned by Offshore Ltd., and (ii) the 699,714 Shares reported herein as owned by
Double Offshore Ltd.
(c) Information concerning transactions in the Shares effected by
the Reporting Persons during the past sixty (60) days is set forth in Appendix A
hereto and is incorporated herein by reference.
(d) No person other than the Reporting Persons is known to have
the right to receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, the Shares.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
Except as set forth herein, there are no contracts,
understandings or relationships among the persons named in Item 2 or between
such persons and any other person with respect to the Shares.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1. Joint Filing Agreement, dated June 9, 2009.
Exhibit 2. Letter from Carlson Capital to the Issuer dated June 8, 2009.
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 10 OF 13 PAGES
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: June 9, 2009
BLACK DIAMOND OFFSHORE LTD.
By: Carlson Capital, L.P., its
investment manager
By: Asgard Investment Corp., its
general partner
By: /s/ Clint D. Carlson
--------------------------------
Name: Clint D. Carlson
Title: President
DOUBLE BLACK DIAMOND OFFSHORE LTD.
By: Carlson Capital, L.P., its
investment manager
By: Asgard Investment Corp., its
general partner
By: /s/ Clint D. Carlson
--------------------------------
Name: Clint D. Carlson
Title: President
CARLSON CAPITAL, L.P.
By: Asgard Investment Corp., its
general partner
By: /s/ Clint D. Carlson
--------------------------------
Name: Clint D. Carlson
Title: President
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 11 OF 13 PAGES
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ASGARD INVESTMENT CORP.
By: /s/ Clint D. Carlson
-------------------------------
Name: Clint D. Carlson
Title: President
/s/ Clint D. Carlson
----------------------------------
Clint D. Carlson
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 12 OF 13 PAGES
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APPENDIX A
TRANSACTIONS IN THE ISSUER'S SHARES OF COMMON STOCK BY THE
REPORTING PERSONS IN THE PAST SIXTY (60) DAYS
The following tables set forth all transactions in the Shares of the Issuer
effected in the past sixty (60) days by each of the Reporting Persons, as
applicable. Unless otherwise noted, all such transactions were effected in the
open market with the personal or corporate funds of the respective Reporting
Person. The Shares are held in either cash accounts or margin accounts in the
ordinary course of business, and otherwise, no part of the purchase price or
market value of such shares is represented by funds borrowed or otherwise
obtained for the purpose of acquiring or holding such securities.
Double Black Diamond Offshore Ltd.
Trade Date Amount Purchased (Sold) Price per Share ($)
---------- ----------------------- -------------------
4/09/2009 (3,050) 11.25
4/14/2009 (2,243) 11.04
4/15/2009 (1,175) 11.04
4/16/2009 (656) 11.01
4/20/2009 (274) 11.00
5/29/2009 35,290 11.25
6/02/2009 692 11.55
6/03/2009 25,975 11.60
6/03/2009 2,370 11.58
Black Diamond Offshore Ltd.
Trade Date Amount Purchased (Sold) Price per Share ($)
---------- ----------------------- -------------------
4/09/2009 (339) 11.25
4/14/2009 (249) 11.04
4/15/2009 (130) 11.04
4/16/2009 (73) 11.01
4/20/2009 (30) 11.00
5/29/2009 2,110 11.25
6/02/2009 41 11.55
6/03/2009 1,525 11.60
6/03/2009 130 11.58
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CUSIP NO. 315653402 SCHEDULE 13D PAGE 13 OF 13 PAGES
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APPENDIX B
DIRECTORS AND EXECUTIVE OFFICERS OF ASGARD
The following sets forth the name, position, and principal occupation of each
director and executive officer of Asgard Investment Corp. Except as otherwise
indicated, the business address of each director and officer is 2100 McKinney
Avenue, Suite 1600, Dallas, TX. To the best of the Reporting Persons' knowledge,
except as set forth in this Schedule 13D, none of the directors or executive
officers of Asgard Investment Corp. owns any Shares.
Asgard Investment Corp.
Name Position Principal Occupation Citizenship
---- -------- -------------------- -----------
Clint Carlson Director/President Investment Manager United States
Nancy Carlson Secretary/Treasurer Executive United States
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EXHIBIT 1
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k) under the Securities Exchange Act
of 1934, as amended, the undersigned agree to the joint filing on behalf of each
of them of a Statement on Schedule 13D (including any and all amendments
thereto) with respect to securities of FiberNet Telecom Group, Inc., and further
agree that this Joint Filing Agreement shall be included as an Exhibit to such
joint filings.
The undersigned further agree that each party hereto is responsible
for the timely filing of such Statement on Schedule 13D and any amendments
thereto, and for the accuracy and completeness of the information concerning
such party contained therein; provided, however, that no party is responsible
for the accuracy or completeness of the information concerning any other party,
unless such party knows or has reason to believe that such information is
inaccurate.
This Joint Filing Agreement may be signed in counterparts with the
same effect as if the signature on each counterpart were upon the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of June 9, 2009.
BLACK DIAMOND OFFSHORE LTD.
By: Carlson Capital, L.P., its
investment manager
By: Asgard Investment Corp., its
general partner
By: /s/ Clint D. Carlson
------------------------------
Name: Clint D. Carlson
Title: President
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DOUBLE BLACK DIAMOND OFFSHORE LTD.
By: Carlson Capital, L.P., its
investment manager
By: Asgard Investment Corp., its
general partner
By: /s/ Clint D. Carlson
------------------------------
Name: Clint D. Carlson
Title: President
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CARLSON CAPITAL, L.P.
By: Asgard Investment Corp.,
its general partner
By: /s/ Clint D. Carlson
------------------------------
Name: Clint D. Carlson
Title: President
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ASGARD INVESTMENT CORP.
By: /s/ Clint D. Carlson
-------------------------------
Name: Clint D. Carlson
Title: President
/s/ Clint D. Carlson
-----------------------------------
Clint D. Carlson
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EXHIBIT 2
[GRAPHIC OMITTED]
June 8, 2009
Robert E. La Blanc
Chairman
Timothy P. Bradley
Oskar Brecher
Adam M. Brodsky
Jon A. DeLuca
Roy (Trey) D. Farmer III
Michael S. Liss
Charles J. Mahoney
Richard E. Sayers
Directors
FiberNet Telecom Group, Inc.
220 West 42nd Street
New York, NY 10036
Dear Sirs,
Carlson Capital, L.P., together with its affiliated entities (collectively
"Carlson" or "we"), is the holder of approximately 10.1% of the common
stock of FiberNet Telecom Group, Inc. (the "Company" or "FTGX"). Carlson
has been a significant shareholder of the Company since July 2007. We are
very disappointed with the $11.45 per share consideration for the proposed
sale of the Company to Zayo Group, LLC ("Zayo"), which we believe does not
fairly compensate the Company's shareholders.
Our analysis concludes that the intrinsic value of FTGX is IN EXCESS of
$14.50 per share. To that end, Carlson does not intend to support a sale of
the Company at the price that has been offered by Zayo.
The Company has impressively built a unique set of assets and relationships
with domestic and global carriers that are unparalleled for a company of
this size. We believe the Company's core service - providing value-added
co-location and end-to-end network transport by means of its strategically
positioned facilities - is a highly attractive business within a rapidly
growing
industry. The Company's 296 customers include many of the largest
telecommunications providers from around the world. It should be noted that
these extensive relationships have been assembled by only a few carriers in
the U.S.
Over the past two years the Company has generated revenue growth rates
comparable to its peers (including the hosting providers and competitive
telecom carriers) but with a 60% lower level of capital intensity, as
measured by capital expenditures to sales. This unique characteristic of
FTGX's business model is not captured in a simple Enterprise Value / EBITDA
multiple, and any comparative valuation analysis should factor in this
important dynamic. We believe more appropriate multiples which consider
different capital intensities are the following:
o Price / Free Cash Flow, and
o Enterprise Value / UFCF (UFCF being defined as EBITDA-Capex)
Thus, if one were to apply 2010 financial estimates to the low end of our
intrinsic value ($14.50), FTGX would be valued at a 35% DISCOUNT (based on
Price/FCF), and a 20% DISCOUNT (based on Enterprise Value/UFCF), when
compared to its peer group.
While the proposed deal price is close to FTGX's 52-week high, the price is
not reflective of the true equity value of the Company. In our judgment,
the current and historic undervaluation of FTGX's common equity has been
depressed due to the Company's limited trading liquidity (approximately 60%
of FTGX's common stock is closely held by a few institutional holders and
officers/directors of the Company) and lack of sell-side research coverage.
If a transaction is to take place, shareholders must be adequately
compensated for the quality of the Company's assets and its competitive
position within the marketplace. The proposed transaction does NOT reflect
the standalone fair market value of the Company, let alone a premium for
control.
We strongly recommend that the Board use this go-shop period, as provided
for in the merger agreement, to actively solicit appropriate offers for the
Company. If there are buyers willing to offer a full and fair value for
this business, we would be pleased to pledge our support in a sale of the
Company. We would also note that other investors appear to share a similar
view regarding the proposed deal, as the stock has consistently traded
above the offer price since the announcement.
Sincerely,
/s/ Clint D. Carlson
--------------------
Clint D. Carlson
President
Carlson Capital, L.P.
|
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