Privately held Zayo Group LLC agreed to buy rival AboveNet Inc, a provider of broadband connections to big companies and carriers, for about $2.2 billion to tap into the galloping demand for fast data services.
The $84 per-share offer represents a 13 percent premium to AboveNet's closing price on Friday on the New York Stock Exchange.
Shares of White Plains, New York-based AboveNet rose 14 percent to $84.45, indicating investors expected a better offer.
Analyst Donna Jaegers of brokerage D.A. Davidson & Co said possible bids might come from strategic players, such as TW Telecom Inc, Comcast Corp and CenturyLink Inc.
AboveNet, whose competitors range from big telecom companies like Verizon Communications Inc and AT&T Inc to smaller regional firms, has until April 17 to solicit better offers.
The 'go-shop' period can be extended to May 2 under certain circumstances, and Zayo has certain rights to match any superior proposal, the companies said in a statement.
"(Zayo CEO Dan Caruso) would probably have a little more dry powder that he could come back with a sweeter deal," Jaegers said.
AboveNet provides broadband connectivity mainly to large businesses and carriers, including banks, brokerage houses, insurance companies, and media companies.
"As far as looking at prime metro fiber assets, AboveNet is head and shoulders above any of the little companies that (Zayo) can look at," analyst Jaegers said.
Louisville, Colorado-based Zayo has a fiber network of more than 44,000 route miles and nearly two million fiber miles.
The combination will bulk up the combined company's footprint throughout North America and Europe, AboveNet Chief Executive Bill LaPerch said.
Last October, Zayo bought 360Networks, a Seattle provider of fiber network and telecommunication services, for an undisclosed sum.
As part of Monday's deal, Chicago-based private equity firm GTCR will make an equity investment in Zayo, which has secured debt finance commitments from Morgan Stanley Senior Funding Inc and Barclays.
J.P. Morgan acted as lead financial adviser to AboveNet with Moelis & Co acting as co-adviser. Wiggin and Dana LLP is serving as AboveNet's legal adviser.
Latham & Watkins LLP is GTCR's legal adviser and Gibson Dunn & Crutcher LLP is legal adviser to Zayo.