FiberNet Telecom Group, Inc. (NASDAQ: FTGX) may face some opposition to its buyout bid after Carlson Capital, L.P. issued a letter to the board in a Schedule 13D filing with the SEC. The activist hedge fund, which owns a 10.1% stake in the company, believes that the standing $11.45 per share offer by Zayo Group, LLC does not fairly compensate the company’s shareholders.

Here's a copy of the letter.

Carlson Capital, L.P., together with its affiliated entities (collectively "Carlson" or "we"), is the holder of approximately 10.1% of the common stock of FiberNet Telecom Group, Inc. (the "Company" or "FTGX"). Carlson has been a significant shareholder of the Company since July 2007. We are very disappointed with the $11.45 per share consideration for the proposed sale of the Company to Zayo Group, LLC ("Zayo"), which we believe does not fairly compensate the Company's shareholders.

Our analysis concludes that the intrinsic value of FTGX is IN EXCESS of $14.50 per share. To that end, Carlson does not intend to support a sale of the Company at the price that has been offered by Zayo.

The Company has impressively built a unique set of assets and relationships with domestic and global carriers that are unparalleled for a company of this size. We believe the Company's core service - providing value-added co-location and end-to-end network transport by means of its strategically positioned facilities - is a highly attractive business within a rapidly growing industry. The Company's 296 customers include many of the largest telecommunications providers from around the world. It should be noted that these extensive relationships have been assembled by only a few carriers in the U.S.

Over the past two years the Company has generated revenue growth rates comparable to its peers (including the hosting providers and competitive telecom carriers) but with a 60% lower level of capital intensity, as measured by capital expenditures to sales. This unique characteristic of FTGX's business model is not captured in a simple Enterprise Value / EBITDA multiple, and any comparative valuation analysis should factor in this important dynamic. We believe more appropriate multiples which consider different capital intensities are the following:

• Price / Free Cash Flow, and
• Enterprise Value / UFCF (UFCF being defined as EBITDA-Capex)

Thus, if one were to apply 2010 financial estimates to the low end of our intrinsic value ($14.50), FTGX would be valued at a 35% DISCOUNT (based on Price/FCF), and a 20% DISCOUNT (based on Enterprise Value/UFCF), when compared to its peer group.

While the proposed deal price is close to FTGX's 52-week high, the price is not reflective of the true equity value of the Company. In our judgment, the current and historic undervaluation of FTGX's common equity has been depressed due to the Company's limited trading liquidity (approximately 60% of FTGX's common stock is closely held by a few institutional holders and officers/directors of the Company) and lack of sell-side research coverage. If a transaction is to take place, shareholders must be adequately compensated for the quality of the Company's assets and its competitive position within the marketplace. The proposed transaction does NOT reflect the standalone fair market value of the Company, let alone a premium for control.

We strongly recommend that the Board use this go-shop period, as provided for in the merger agreement, to actively solicit appropriate offers for the Company. If there are buyers willing to offer a full and fair value for this business, we would be pleased to pledge our support in a sale of the Company. We would also note that other investors appear to share a similar view regarding the proposed deal, as the stock has consistently traded above the offer price since the announcement.