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Covad sells to private equity firm for $304 million

The once high-flying telecom provider is the latest in a long line of technology companies to be gobbled up by private equity firms.

Covad Communications Group has sold out to the private equity firm Platinum Equity for $304 million in cash, the company said Monday.

Covad, which offers a slew of telecommunications services such as DSL, voice over IP, broadband wireless, and Web hosting to Internet service providers and small and midsize businesses and home users, is the latest in a long line of technology companies to be gobbled up by private equity firms as they struggle to keep up in the competitive market.

Earlier this year, Palm sold out to Elevation Partners for $325 million. And Avaya was bought for $8.2 billion in cash, or $17.50 a share, from private equity firms TPG Capital and Silver Lake.

In the past, private equity firms typically bought companies simply to slice them up and sell them off. While it's possible that Platinum could have that in mind for Covad, the hope is that the firm will breathe new life into Covad just as Avaya's and Palm's private equity acquirers are trying to do with them.

"Platinum's approach will bolster the successful execution of Covad's business strategy while providing the resources and support necessary for sustained growth," Charles Hoffman, Covad's chief executive officer, said in a statement. "We believe that the resulting increased market competiveness, improved capital structure, and enhanced product and network capabilities best position our customers, partners and employees for the future."

At least for now, Platinum says it sees great potential in Covad's business.

"There is opportunity for growth as demand for high bandwidth services evolve, and we're eager to help Covad drive that growth," Johnny O. Lopez, partner and head of global mergers and acquisitions for Platinum Equity, said in a statement.

Once upon a time, Covad had been a high-flying telecom stock on Wall Street. But the company was hit hard when the dot-com bubble burst. Unfavorable regulatory rulings at the Federal Communications Commission didn't help matters much either as competition, especially from the big phone companies, increased. But even through bankruptcy, Covad managed to hang on while some of its competitors did not.

Investors liked the buyout news, boosting the company's stock 42 percent to close at 91 cents a share. Of course, this share price is still a far cry from its heyday when it traded around $60 a share in early 2000. But at least the company is still alive, for now.