Cbeyond Faces Investigations After $323 Million Planned Acquisition By Birch Communications

Telecom service provider Birch Communications plans to acquire national managed services provider Cbeyond for $323 million, the two Atlanta-based companies said Monday.

On the same day that the planned acquisition was announced, Johnson & Weaver, a shareholder rights firm, said it has begun an investigation aimed at examining whether the deal was undervalued and alternatives were properly considered. In addition to Johnson & Weaver, at least three other law firms said Monday they were investigating the acquisition, including Kirby McInerney LLP, Pomerantz LLC, and Rigrodsky & Long, P.A.

The combined Cbeyond and Birch Communications would create a single nationwide company focused on communications, cloud and managed services with annual sales of approximately $700 million.

[Related: The 10 Biggest Tech Acquisitions Of 2013 ]

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Cbeyond shareholders would receive between $9.97 and $10.00 per share of stock if the deal is completed. The cash amount per share will be officially determined after previous stock awards are finalized. Shares of Cbeyond soared 38 percent on the news of the acquisition to $9.83, up from a Friday closing price of $7.08.

"The transaction will create a nationwide communications and technology services powerhouse and significantly advances our strategy to drive top-line revenue growth by enhancing the premier communications, cloud and managed services that are available to our business customers," said Birch Communications CEO Vincent M. Oddo in a prepared statement.

In its fiscal year 2013, which ended Dec. 31, Cbeyond, which bills itself as "technology ally for small and midsize businesses," posted a loss of $10.82 million on sales of $463 million. In fiscal 2012, the company posted a loss of $2.32 million on sales of $487.96 million. The company said last November on its third-quarter earnings call that it intended to "explore strategic alternatives," including acquisition. As for Birch Communications, it is the company's 21st acquisition in recent years.

Cbeyond in March unveiled a marketing alliance with Microsoft to offer MSPs and VARs the ability to deploy solutions in Cbeyond's cloud.

Johnson & Weaver, with offices in San Diego and New York, said that it is investigating whether members of Cbeyond's board of directors "breached their fiduciary duties in connection with the $323 million buyout."

Johnson & Weaver said in a statement that it is working to determine whether the board of directors agreed to sell the company for an "inadequate price." In addition, the shareholder rights firm said that it would be investigating whether other alternatives to a Birch Communications acquisition were properly considered, including both other possible acquirers or remaining as an independent public company.

However, Seth Collins, principal at Walnut Creek, Calif.-based merger and acquisition investment advisory firm Martin Wolf, said that as an outsider looking at the deal and the company financials he had no reason to think that the deal was undervalued. The share price premium was 56.8 percent over the closing share price of $6.36 on Nov. 5, 2013, when the company announced its intention to explore "strategic alternatives." That jump in share price makes it difficult to argue it is not a nice premium, he said.

"Nowadays there are aren’t too many public companies that get sold without having somebody complaining," Collins said.

"I think the team that [founder, Chairman and CEO James Geiger] and [Executive Vice President and CFO] Bob Fugate put together, I think those guys are honorable, good, hardworking guys that care about their business. [Geiger], being the founder, truly cares about what he gets for his life's work," Collins said.

When contacted by CRN on the news, Cbeyond declined to comment on the investigation by Johnson & Weaver. Birch Communications and Johnson & Weaver had not responded to CRN by press time.