My team and I have been working on a proposal for RCN ever since 2007, and we made it officially known during a personal meeting with its CEO, Pete Acquino, and other C-levels two years later, on December 9, 2009 at the UBS Investors Conference in New York City.Pete asked to meet again within two weeks, and we agreed that RCN’s COO would be in touch with us. However, we didn’t hear anything from RCN’s C-levels again, and on January 18th I emailed them, immediately followed up with a call to their headquarters as listed on Pete’s business card. I didn’t hear back from them. I got busy with other projects, and on January 31st, I got a call from my sister that I’d better visit my dad in the ICU in the Netherlands because he wasn’t doing well. I flew back the next day, was able to communicate somewhat somehow with my father, and he passed away on February 17th. So, as you may understand, pursuing or chasing RCN’s non-responsive CEO was the last thing on my mind. In any case, I thought there would be no rush; little did I know that they may have been playing cahoots with ABRY Partners to sell themselves (on the cheap), as I found out on March 5th when I was checking RCN’s share price. I am not the only person feeling screwed, RCN is now being plagued by lawfirms who are planning to sue or are already suing the company’s directors for “breach of fiduciary duty”. I am not one to judge people and to complain easily, but I am pissed off that we didn’t even get the chance to join the race. We valued RCN at around $1B market cap (which would come to approximately $28,- per share; contrast that with the petty $15 that ABRY offered-the shares were trading at $12.20 before the news broke), and we’d assume and/or arrange to refinance/restructure the approximately $700M debt. This means we put the Enterprise Value of RCN at slightly below $1.7B (RCN’s cash on hand is reportedly $83.5M).

I am sure (and below I explain) that I could have raised the needed funds. This is my first public account of the rationale and vision behind our bold attempt (which was not to be).

iUHBA’s Strategic Rationale, and RCN’s Challenges to Survive

The last 2.5 years have been disastrous for most businessmen/entrepreneurs; first there was the panic around the Subprime Mortgage meltdown, and then there was, subsequently, the global economic crisis hit the fan. Around that time, my firm was looking for $2 Billion (with a B) to invest in a Fiber To The Home and 4G Wireless infrastructure in the USA and the Netherlands, so I had my share of disappointing talks with Corporate Finance specialists, Investment Bankers and potential investors. They were all interested in helping the company to the next level, but we had to ride out the crisis, and since nobody knew how long this freeze would remain, we had to stay busy one way or the other. So, my team and I mainly focused on fine-tuning the FiberBroadband Strategy, and to work on business partnerships and our business model. Several “industry watchers” may be accusing me of “inaction” or –worse- of “inability to deliver”. In the course of the last 10 years that I have worked in this industry, I have created many enemies and just a handful of friends. However, I believe we have been perfecting a business strategy over the course of 10 years, and that it will soon bear its fruits.

Since building a FTTH and 4GWL infrastructure is a painstakingly slow process (you have to physically build out the last mile, which means digging, trenching or areal works) and very expensive, we have been looking at a strategy to minimize our pain. The search for a company that would bring great synergies to our little company was on. I contacted Abovenet in 2007, but it was still in a mess, so we didn’t pursue anything; we also thought of the likes of Global Crossings. However, another company, RCN Communications, turned out to be the greatest match.

RCN isn’t the greatest company in the Cable industry (they call themselves an “alternative cable operator”), far from it. In fact, in our USA footprint they have great assets but are at the same time the weakest and smallest competitor, which was our primary reason to target RCN markets in our upcoming rollouts. Because, so we mused, when you plan to compete as a new operator in crowded markets, you better go after the weakest players; it would be easier to compete with RCN than with Verizon’s FiOS or Comcast – for many reasons, including a) RCN has no deep pockets, b) their loan covenants prevented them from major capital expenditures, and c) their profits are used to paying interest on their $700M depth. On the other hand, we were/are planning a massive assault on the RCN markets with a superior product (FTTH 1-10 Gbps per connection) and additional services (4G wireless) to create a Quintuple Play offering. This would make our offering superior to Verizon’s FiOS service.

RCN had three major attractive points to us: 1) its massive fiber optic infrastructure (12,000 fiber route miles) in the North East region, 2) its 450,000 existing customers , with 1 million households and SMEs passed and a franchise of 5 million in total, and 3) its operational structure. Thus, we would use the operational and infrastructural assets to create project synergies and as a jumping board for our FTTH and 4GWL rollouts in the RCN markets. And we would, as a turn-around strategy for RCN itself, embark on an upgrade of RCN’s HFC-system customers to superior FTTH connections with, among others, 1 Gbps internet connections. This all would be much better, for both RCN and us, than competing the crap out of each other. By leveraging the synergies we would have with RCN, we would instantly become the superior player in the market.

RCN and any other subsequent owner will never fully utilize its 12,000 fiber route miles. There is, of course, some revenues to be made off this infrastructure, but the overkill of fiber in their core market (North East Corridor) is not serving their bottomline. We, at iUHBA, also don’t need RCN in order to be successful, but it would make our lives lots easier as we’d be in control of our own metro fibers. We’d be buying an infrastructure that had cost RCN $3B to build, plus all the strategic conveniences of an operational company with almost half a million paying customers. Of course, there would be headaches inherited too, but the monthly recurring revenue RCN generates is a great medicine for that.

In short, we’d acquire RCN and leave it almost intact, we’d gradually start upgrading its existing customer base, and we’d start our 10 Gbps FTTH and 100 Mbps 4GWL rollouts in the rest of the footprint (which would be around 1 million units in total) and the rest of the franchise (of 5 million). Thus, our (iUHBA’s) investors would not be just investing is a start-up; they’d be investing in a company with true, tangible assets, with operating income, a company that would be“going concern”, which would give them the peace of mind they need, thereby minimizing the risks of our already greatly modeled FTTH and 4GWL projects, which promises gigantic growth opportunities to this company. This strategy would make us an attractive investment target for all kinds of investors.

It’s also important to note that it will be very hard for ABRY Partners to make a success of RCN, even if they split the company and sell its parts separately. RCN is a whole different animal than WOW!, which ABRY sold to Avista Capital Partners. First, RCN is laden with almost $700M debt, and even if the assumed debt will be restructured, the debtors want their money back one day or the other. Of course, RCN had to create an exit one way or the other because the majority of its debt was due to mature in 2013. How the hell would they have paid the debtors? The Deutsche Bank advised RCN in this deal with ABRY, but why? Well, the same bank held the majority of that debt!

Second, in order to compete on an equal basis in their markets, RCN has to come up with an upgrade plan and a superior product offering. Forget DOCSIS 3.0 or DOCSIS 4.0, if RCN (and all other market players) doesn’t go for FTTH (1 Gbps per connection), they are going to be the ones left standing, empty-handed, especially when the likes of iUHBA enter their markets with their services.

RCN is already the ugly duckling in their markets, and it will not turn into a beautiful swan without an extreme makeover. To dream and expect otherwise is just wishful thinking.

How would iUHBA pay for RCN, the FTTH and 4GWL rollouts, and how would we make it prosper?

Over the course of 10 years (since April 2000), my team and I have developed the FiberBroadband Strategy, which is a turn-key business strategy for the rollout and operations of FTTH and 4GWL infrastructures. We know this industry inside out, and while there are hundreds of such projects being rolled out, we know how to build such infrastructures to multiple million customers. And while Verizon’s FiOS cost its investors approximately $25B, we know how to build an even larger project for a fraction of that amount. This is what makes us “unique” in the industry.

It is, of course, easy to theorize, but raising funds is a tough job, no matter how great the theory sounds and how feasibly the vision seems. That is why I have assembled a team of Investment Bankers and Corporate Finance experts to help me structure the best strategy. I am in the process of launching N.S. Lachman & Co., which will set up a Limited Partnership that will be the fund wherein we’ll invite investors (limited partners) to participate. In search of the best legal and financial structure to represent its investors we came to the conclusion that there is no ready-made strategy to follow in order to “package” our take-private deal or two-step merger with the likes of RCN.

Below, I explain the steps in a scenario implied to describe how we would arrange the financing of such an ambitious project and acquisition.

• NSL&CO (the General Partner -GP) will set up a Private Equity investment fund (the Limited Partnership- LP), work under SEC exemption laws. The GP will provide LPs a detailed (approximately 100-page) business plan and prospectus of “RCN after the acquisition by iUHBA”, explaining most of the ins and outs, including the investee’s (which would be the newly formed, merged company) future growth potential, and revenue and earnings projections.

• This fund is different from a PE, VC or Hedge Fund, because in those structures the investors do not have a specific outline or idea where their money will end up. With the Business Plan approach, LPs will know where the majority of their money will be invested and what kind of strategies the Fund’s managers utilize to invest their money and increase value. The Prospectus gives the LPs insight in the investment strategy the fund will follow.

• The fund will not be the one to take RCN private; it will be iUHBA or a special purpose holding firm. The investee holding firm will receive capital from the fund and thereafter reinvest that money in the target company.

• The GP is basically agnostic on the final form of the transaction (tender/merger/acquisition) between iUHBA and RCN. It all revolves around the fact that the future of the investee is bright (especially when funded and groomed for future public listing, after the growth is realized and the upgrade is under way or finalized) while the RCN’s present status is doubtful and its past has been problematic, making it a depressed or struggling company.

The lawyers now suing RCN think the main breach of fiduciary duty by its directors is that RCN did not shop and try to get the best deal possible for their retail investors. I believe they are right. We were absolutely convinced that we would have been given a fair chance to at least try to acquire RCN, but they had other plans. I don’t know when they initiated serious discussions with ABRY… was it after I met them in December, or was it earlier… maybe after July 22, 2009, when I posted a question on Linkedin about RCN’s attractiveness to potential buyers. Or was there always some flirting between ABRY and RCN, and did my expression of intent help RCN to parade itself for a quick deal with ABRY, or did it not? I hope the lawyers will find out. Even if ABRY gets to acquire RCN (most likely for a higher price than they bid now), I feel that the company is worth $1.7B as it is today. I am interested in the company today, and I will be interested in it tomorrow, because after all… I am still planning a major assault on the service providers market in the RCN markers. It’s just that our project in the USA will just a bit more work than it would be with RCN. If I’d get a fair chance or opportunity to enter into an agreement with RCN (subject to financing, of course), I’d make sure I’ll have the money and the structure ready within 6 months. On the other hand, maybe now we should start looking at other firms, again.