Microsoft co-founder Paul Allen’s Vulcan Ventures said Monday that it has invested $1.65bn in telecommunications company RCN Corp. RCN, which provides telecoms, cable and internet services, said the investment will fully fund its network build-out well past break-even through early 2003. The move represents one of Vulcan’s largest investments to date and comes as part of Allen’s wired world portfolio of investments in broadband, new media, entertainment and technology companies.
Vulcan’s investment is in the form of convertible preferred stock, which must be converted into RCN common stock no later then seven years after it is issued. The preferred stock is convertible into RCN stock at a price of $62 per share – a 63% premium over Friday’s closing price. Vulcan will get approximately 26.6 million shares of RCN stock, which together with the 4.5% stake it already owns, would represent a roughly 27.4% ownership interest in the company.
Terms of the deal call for Vulcan to be limited to no more than 15% of voting stock, however, so some of the preferred stock in the transaction will be converted into non-voting shares. Vulcan will also get to appoint two members to the RCN board of directors and has agreed not to increase it stake in the company. The investment is expected to close in the first quarter of 2000.
Separately, Princeton, New Jersey-based RCN said it will participate in a joint venture between Vulcan and portfolio companies Charter Communications, Go2Net and High Speed Access to develop internet portal services. The venture, Broadband Partners, will provide high-speed web services over digital set- top boxes, targeting Charter and RCN customers at first. RCN has also entered into a joint venture with Charter to provide cable telephone services in Los Angeles.
RCN said the investment made a great deal of sense, as both parties are interested in delivering bandwidth to the home. It added that there is no geographical overlap between its operations and those of Allen’s other holdings. The company sees the deal as a major vote of confidence in its strategy of building a state-of-the-art fiber-optic network capable of providing bundled phone, cable, high-speed internet and other services.
In another move, RCN announced that it has promoted Michael Adams, head of its technology and network development group, to president and chief operating officer. He succeeds Michael Mahoney, whose status with the company is still uncertain.
Since becoming a public company two years ago, RCN has raised a total of $4.6bn through the debt, equity, bank and private equity markets. With Allen’s investment, the company will have a total of $3.8bn in cash and available capital, or enough to connect more than 4.5 million homes to its fiber-optic network. RCN has targeted the high-density areas throughout the Boston to Washington and San Francisco to San Diego corridors.
