Zayo Group Holdings, Inc. (NYSE: ZAYO) has announced it will split into two publicly traded companies. The bisection, which will see the creation of a company focused on providing core communications infrastructure and services as well as a second offering connectivity to enterprise customers, should occur late next year.
“Today’s announcement is the logical next step in the evolution of Zayo,” said Dan Caruso, chairman and CEO of Zayo. “While Zayo’s business today is organized as five autonomous segments, the complexities of these businesses have made it more difficult to achieve our growth objectives. By completely separating the infrastructure and enterprise businesses, we will enable more focused execution within each business, leading to enhanced growth and unlocking value.”
Zayo plans to create the split via a pro rata taxable spin out of the enterprise company (“EnterpriseCo,” for the time being). Zayo expects to have its present NOLs available to reduce any cash taxes owed in conjunction with the spin-off. The strategy preserves the ability of the remaining infrastructure company (“InfraCo” for now) to convert to a real estate investment trust (REIT). Zayo shareholders will own shares of both companies.
EnterpriseCo will include the current Enterprise Networks and Allstream segments, along with the SONET and Ethernet businesses of Zayo’s Transport segment. It will comprise a pair of business units, the Enterprise and Carrier divisions. The Enterprise Division will focus on delivery of direct-to-enterprise services, including SD-WAN, IP VPN, and unified communications. The division will start with a customer base of more than 50,000 enterprises. The Carrier Division will supply wholesale services to carriers including Carrier Ethernet tails, wholesale voice, and SONET. Newly named COO Mike Strople, current president of Zayo’s Allstream Segment, and Tyler Coates, senior vice president of Zayo’s existing Enterprise Segment, will lead the company, which will have what Zayo describes as “a long-term relationship with InfraCo” to provide certainty of network access and cost.
InfraCo, meanwhile, will combine Zayo’s current Fiber Solutions and zColo business segments, along with the Wavelength and IP Transit businesses of Zayo’s Transport segment. The company will own and operate Zayo’s Tier 1 IP backbone as well as the Media Networks platform. Zayo expects the focus will have a clear path to REIT conversion. Caruso will lead InfraCo.
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