Dynegy Jumps Puddle Into Euro Broadband

Just three months after Houston-based Dynegy announced it would enter the North American wholesale broadband communications business, it now is storming into Europe with a deal to buy London-based iaxis Ltd., a cash poor fiber optic network operator. Dynegy also told analysts yesterday that it expects earnings to jump 20% to 25% per year over the next three years spurred by its asset-based growth plan.

In a full-day financial analyst conference Tuesday, Dynegy senior executives laid out their strategies for the high-flying company. Announcing its target range for 2001 recurring earnings forecast, the company expects earnings per diluted share of $1.65 to $1.75, an increase of 25% to 30% from forecasts for 2000. The company also said that its recurring EPS growth rate through 2003 would average 20% to 25%.

The announcement of Dynegy's push into Europe was not unexpected, as CEO Chuck Watson has indicated over the past few months that he sees Dynegy's global growth as key to the company's continued growth (see Daily GPI, Sept. 15). The iaxis deal calls for Dynegy to pay a nominal amount for shares of the company and then provide $40 million in payments to iaxis creditors who will receive 40% of their claims against the company. Dynegy also will invest another $160 million to extend iaxis' network.

What the deal brings to Dynegy, though, is a major presence in the broadband market, which it only entered in August (see Daily GPI, Aug. 3). Leveraging its merchant talents into broadband communications, Dynegy said it would purchase Colorado-based Extant Inc. for $60 million in cash and 1.25 million shares of Dynegy common stock. Extant already was operating in 28 U.S. cities.

The iaxis purchase, expected to close in early 2001, will fall into Dynegy's newest division, Dynegy Global Communications, a division to include Extant that will own 80% of a limited partnership to be called Dynegy Connect. Telstrat Corp. Ltd., an Australian telecommunications and information services company, owns a 17% interest in Extant and has signed a memorandum of understanding to own a 20% interest in Dynegy Connect.

With the newest acquisition, Dynegy intends to establish Dynegy Europe Communications Ltd., which will be headquartered in Vienna, Austria, with offices in London, Berlin, Paris, Milan and Amsterdam.

"Initially, Dynegy's focus will be to capitalize on the near-term revenue opportunities utilizing iaxis Ltd.'s assets, which will provide immediate connectivity to our U.S. network," said Matt Epling, who will become managing director of Dynegy Europe.

The London company is owned by iaxis NV, a Dutch venture capital holding company that owns and operates an 8,750-mile (14,000-kilometer), 10-gigabit fiber optic network throughout Europe. The network has 40 hub sites.

"This acquisition firmly establishes the platform for the expansion of Dynegy's network connectivity and broadband communications strategy into Europe and is an ideal complement to Dynegy's U.S. operations," Watson said. "For a cost of less than U.S. $200 million, Dynegy will have a significant presence in the European communications marketplace."

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