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August 14, 2012

IPO to Play Key Role in Cincinnati Bell, Cyrus One Growth

Following speculation earlier this year, communications provider Cincinnati Bell announced it filed the necessary papers with the Securities and Exchange Commission (SEC (News - Alert)) for an initial public offering of CyrusOne, its data center business.

While CyrusOne currently accounts for about 10 percent to 20 percent of Cincinnati Bell’s (News - Alert) business, the IPO could help the Ohio-based communications company by maturing the value in the fast growing data center colocation business, according to media reports.

Cincinnati Bell is spinning off CyrusOne (News - Alert) with this IPO, and for good reason: CyrusOne is its strongest growth engine. The colocation business’ revenues are up 157 percent in two years, according to – and it’s contributed 14.4 percent of Cincinnati Bell’s revenues so far this year, up from 5.4 percent of total revenue in 2009.

Cincinnati Bell proper, meanwhile, has seen erosion in its other business units – making this IPO that much more important. In addition to the spinoff, a portion of the proceeds from the IPO will be used to repay outstanding indebtedness of CyrusOne owed to Cincinnati Bell, company officials said in a statement.

If all goes according to plan – which doesn’t always happen with IPOs – CyrusOne, which will be based in Dallas, “would use the $300 million in proceeds to boost its business, but it would also pay off some $525 million it owes to Cincinnati Bell,” reported. “The local company would use the influx of cash to pay down its own $2.5 billion in debt, which would lower interest costs and improve cash flow. It could also help boost investment in its other growing business: Fioptics fiber cable Internet and entertainment services.”

In comparing other similar stock scenarios, Seeking Alpha said the most appropriate comps for CyrusOne are Rackspace (News - Alert) and Equinix, both of which are growing fast and trading at high valuations as a result.

While investors hadn’t taken much notice of the potential IPO which was first rumored back in May, since papers were filed with the SEC last week, shares are up 20 percent to $4.50.

Want to learn more about the latest in communications and technology? Then be sure to attend ITEXPO West 2012, taking place Oct. 2-5, in Austin, TX.  Stay in touch with everything happening at ITEXPO (News - Alert). Follow us on Twitter.

Edited by Rachel Ramsey

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