IBasis merger in hands of shareholders
Deal with Dutch carrier would create one of top five long distance services
A behind-the-scenes Burlington telecommunications company that barely survived the dot-com bust will today seek final approval from its shareholders for a deal that will place it among the top five international long distance providers.
If the deal is approved, iBasis Inc. will merge with the international wholesale voice business of Dutch national carrier Royal KPN NV and give KPN a controlling stake in iBasis. Under the terms of the definitive agreement first disclosed over a year ago, KPN will merge its subsidiary into iBasis and pay $55 million, receiving a 51 percent share of the company, which will remain headquartered in Burlington.
The combined company would have had revenue of $1.3 billion in 2006 - $814 million from KPN Global Carrier Services and $511 million from iBasis, and would have carried more than 20 billion minutes of international long distance calls.
"It is definitely significant that iBasis is gaining so much reach and traffic," senior analyst Aaron Blazar of industry research firm Atlantic-ACM wrote in an e-mail. "The acquisition of the KPN wholesale division will certainly give iBasis greater reach and enhanced products with regard to international termination."
IBasis carries voice calls over the Internet. While it is not a company that most have heard of, iBasis has become a major player in carrying international voice traffic as it does the back-end work of connecting international calls for customers, from Skype to Verizon.
"I think we're positioned well for the future because we are the low-cost provider of international voice services, and also because we have scale," said iBasis cofounder and executive vice president Gordon VanderBrug, who said iBasis would be able to capture more of the international voice traffic market as providers look to outsource their international calling business, while they focus more on their consumer-facing products like the bundles of voice, video, and Internet that have become more commonplace.
"Historically every country had one telephone company and that telephone company took all the international traffic in and out of that country. . . . IBasis went in and said we are going to be really really good and big at carrying international traffic," VanderBrug said, comparing it to the payroll business, which was once done in-house but is now commonly outsourced to a specialized company.
IBasis will be well-positioned if carriers decide to outsource their traffic, because it uses "voice over internet protocol" technology, which is growing rapidly and accounted for about one-fifth of international voice traffic in 2006 according to TeleGeography Research.
While Blazar said the company's network was highly efficient, it wasn't always seen as a winner.
Between 1997 and 2001, iBasis was one of the fastest-growing technology companies in the country, according to the Technology Fast 500 program run by Deloitte & Touche. But in the dot-com bust, the company narrowly escaped collapse, with its market capitalization plunging from a high of $3.3 billion in 2000 to about $12 million in 2002. Today, 195 of its 286 employees are based in Massachusetts, and VanderBrug says iBasis, which has been growing about 40 percent a year, does not plan any job cuts after the deal is complete.
Jonathan Schildkraut, analyst with Jefferies & Co. Inc., wrote in a recent report that the merger would "create a global international long distance wholesale provider with strong relationships with fast growing consumer VoIP and wireless providers" and rated the company "buy."
The deal was delayed by an investigation into iBasis's stock options practices. This summer, iBasis filed its 2006 annual report, restating results for the prior two years due to backdating.
Carolyn Y. Johnson can be reached at cjohnson@globe.com.
