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Exclusive: EQT, Digital Colony, Stonepeak group near deal to buy Zayo - sources

By Liana B. Baker and Greg Roumeliotis

(Reuters) - A consortium including investment firms Digital Colony Partners LP, EQT AB and Stonepeak Infrastructure Partners has secured exclusive rights to negotiate a deal to buy U.S. communications infrastructure provider Zayo Group Holdings Inc, people familiar with the matter said on Wednesday.

The deal, potentially one of the biggest leveraged buyouts of the year, would come after activist hedge fund Starboard Value LP disclosed a 4 percent stake in Zayo last month and pressed it to seriously consider a sale.

Zayo shares jumped as much as 7.4 percent before easing to $31.15, up 5.8 percent.

After rejecting multiple offers from private equity bidders over the last few months, Zayo agreed to negotiate with the consortium exclusively after it received an offer it deemed attractive enough, the sources said.

The exact offer could not be learned, but sources said it would value Zayo at between $8 billion and $9 billion, excluding $5.9 billion in long-term debt. The consortium is in the process of finalizing debt financing for its bid, the sources added.

If negotiations conclude successfully, a deal could be announced later this month, the sources said, cautioning no agreement is certain. They asked not to be identified because the matter is confidential.

Zayo, EQT, Digital Colony and Stonepeak did no immediately respond to requests for comment.

Zayo operates a 130,000-mile (209,214 km) fiber network in the United States and Europe that helps connect data centers and serves wireless and landline phone companies. It stands to benefit from rising demand for bandwidth, driven by cloud computing and streaming.

Zayo been looking to boost its earnings amid anemic revenue growth and heavy capital expenditures.

The Boulder, Colorado-based company said in November it would break itself up into two companies, but then said in February it no longer believed it was in its best interest to pursue a public spinoff as part of its strategic review.

Plans disclosed in November to convert to a real estate investment trust as early as 2020 were also pushed back in February.

If Zayo decides to remain independent, it would need to streamline operations, be more disciplined in allocating capital, and improve oversight, Starboard wrote in a letter to the company last month.


(Reporting by Liana B. Baker and Greg Roumeliotis in New York; Additional reporting by Carl O'Donnell in New York; Editing by Jeffrey Benkoe)