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September 2007 - Posts
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Creates one of the largest nationwide competitive communications service providers with LTM revenues of $1.6 billion as of June 30, 2007. Forms nationwide platform with approximately 3.4 million access line equivalents in service. Adds network assets including 17,000 fiber-route miles;
Brings total combined switches to 116
Reduces combined company leverage
FAIRPORT, N.Y. and CEDAR RAPIDS, IOWA (September 17, 2007) – PAETEC Holding Corp. (NASDAQ GS: PAET) today announced that it has signed a definitive agreement to acquire McLeodUSA Incorporated, a privately held company, in an allstock merger for $557 million. The merger price consists of $492 million in PAETEC common stock and $65 million in net debt assumption. The company will become one of the largest nationwide competitive communications service providers focusing on business customers. With this acquisition, PAETEC adds an extensive fiber optic network and 18 states to its footprint, including such key markets as Dallas, Houston, Denver, Detroit, Phoenix, Seattle and Cleveland. The transaction creates a company with an estimated $2.7 billion enterprise value and is expected to produce cost synergies of approximately $20 million in the first year following the closing, and run-rate synergies of approximately $30 million during the second year post-closing. For the twelve months ended June 30, 2007, on a pro forma basis, the combined company generated approximately $1.6 billion in revenue and $263 million in Adjusted EBITDA 1, including $30 million in synergies. The combined company expects to have approximately 3.4 million access line equivalents in service and a local presence in 47 of the top 50 Metropolitan Statistical Areas (MSAs) in the country in 2008.
"This transaction is squarely in line with our corporate strategy and positions PAETEC as one of the largest nationwide competitive communications providers serving business customers," said Arunas A. Chesonis, Chairman and Chief Executive Officer of PAETEC. "We’ll now have nearly 4,000 employees and we plan to increase our presence into 82 of the top 100 MSAs in 2008. With this combined footprint, we offer a compelling alternative to the legacy carriers. We have industry leading customer service, a comprehensive suite of business services and an extensive switching and fiber network with infrastructure including last mile capabilities. McLeodUSA’s management team of industry veterans has built a strong franchise, which we believe positions PAETEC to deliver substantial long-term value to our customers and shareholders." "This transaction validates the hard work of McLeodUSA employees, who built a strong carrier focused on the underserved needs of businesses," said Royce J. Holland, Chief Executive Officer, McLeodUSA. "I'm proud of what we've accomplished, and the combination with PAETEC offers us the ideal opportunity to accelerate our market penetration of high value integrated access customers to the benefit of our customers, employees, suppliers and partners."
McLeodUSA currently owns and manages one of the largest high-capacity fiber networks in the nation, spanning 20 Midwest, Southwest, Northwest, and Rocky Mountain states. This fiber network contains approximately 13,000 intercity route miles and approximately 4,000 metro route miles. The combined company will operate 77 traditional voice switching facilities and 39 IP soft switches. McLeodUSA has operations in 20 states, while PAETEC operates in 23 states and the District of Columbia.
Transaction Terms and Structure
Under the terms of the merger agreement, which was unanimously approved by the boards of directors of both companies, McLeodUSA will become a PAETEC subsidiary. Current McLeodUSA shareholders will receive 1.30 shares of PAETEC common stock for every share of McLeodUSA common stock they own. Approximately 40 million shares of PAETEC common stock will be issued to holders of currently outstanding McLeodUSA stock. PAETEC currently has approximately 102.1 million shares of common stock outstanding. McLeodUSA’s employee stock options, of which 2.7 million are outstanding, will be converted into options to purchase PAETEC shares, to the extent not exercised before closing.
The all-stock structure of the transaction is expected to enhance the combined company’s financial position by reducing PAETEC's ratio of debt to Adjusted EBITDA 1 from the current level of 3.9x to an estimated ratio of 2.9x upon the closing of the transaction. McLeodUSA’s outstanding $104 million senior secured notes will be prepaid at closing.
"This transaction offers clear financial and customer benefits, including a significant deleveraging of our balance sheet and the potential realization of $30 million in annual combined cost and run-rate synergies," said Keith Wilson, Chief Financial Officer of PAETEC. "With McLeodUSA we add 26 of the top 100 MSAs that complement our existing footprint, a network that cost more than $2.5 billion when it was built, and a team of industry-tested managers and employees, all of which we believe will deliver immediate benefits to our customers."
Company Leadership and Headquarters
After the closing, Arunas A. Chesonis will remain Chairman and Chief Executive Officer of the company. Keith Wilson, Chief Financial Officer of PAETEC, and EJ Butler, Jr., Chief Operating Officer of PAETEC, will also remain in their respective roles. PAETEC will continue to be headquartered in Fairport, New York, and will maintain McLeodUSA’s operations in Cedar Rapids, Iowa, and other significant regional centers, including Charlotte, North Carolina. After the closing of the transaction, PAETEC’s current board of directors will add one director to be designated by McLeodUSA.
Approvals
The transaction is subject to approval by both PAETEC and McLeodUSA shareholders, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, approvals by state public service commissions in the states where the combined company will operate, and other customary closing conditions. The companies expect that the transaction will close in the first quarter of 2008.
Additional information about the transaction will be contained in PAETEC’s Current Report on Form 8-K to be filed with the SEC.
Advisors
Merrill Lynch & Co. is acting as financial advisor to PAETEC and Hogan & Hartson LLP is acting as legal advisor. Deutsche Bank Securities Inc. and Jefferies & Company, Inc. are acting as financial advisors to McLeodUSA and Ropes & Gray LLP is acting as legal advisor.
Conference Call
PAETEC will host a conference call with the investment community today at 11:00 a.m. ET. PAETEC Chairman and CEO Arunas A. Chesonis, Chief Financial Officer Keith Wilson, and Chief Operating Officer EJ Butler, Jr., will be participating, along with McLeodUSA CEO Royce Holland and Joe Ceryanec, McLeodUSA Chief Financial Officer. Listeners may dial-in to 866-825-3354 (617-213-8063 international), and enter the passcode 57376589. A live Webcast and replay of the call will be available at www.paetec.com.
About PAETEC
PAETEC (NASDAQ GS: PAET) is personalizing business communications for mediumsized and large businesses, enterprise organizations, and institutions across the United States. PAETEC offers a comprehensive suite of IP, voice, data and Internet services, as well as enterprise communications management software, network security solutions, CPE, and managed services. For more information, visit www.paetec.com.
About McLeodUSA
McLeodUSA provides managed IP-based communications services to small and medium-sized enterprises, and traditional circuit-switched telephony services to commercial customers in the Midwest, Rocky Mountain, Southwest and Northwest regions of the nation. McLeodUSA delivers a wide variety of broadband IP-based voice and data solutions, targeting primarily small and medium-sized enterprises and multilocation commercial customers. For more information, visit w ww.McLeodUSA.com.
Footnote 1: Adjusted EBITDA, which represents earnings before interest, taxes, depreciation, amortization, and other charges, includes $30 million of run-rate synergies and excludes $6.5 million of one-time costs associated with the US LEC acquisition.
Forward-Looking Statements
Except for statements that present historical facts, this release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, you can identify these statements by such forward-looking words as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would," or similar expressions. These statements, which include PAETEC’s forecasts of the combined company’s total revenue, adjusted EBITDA, merger-related synergies and other financial results, involve known and unknown risks, uncertainties and other factors that may cause the combined company’s actual operating results, financial position, levels of activity or performance to be materially different from those expressed or implied by such forward-looking statements. Some of these risks, uncertainties and factors are discussed under the caption "Risk Factors" in PAETEC’s 2006 Annual Report on Form 10-K and in PAETEC’s subsequently filed SEC reports. They include, but are not limited to, the following risks, uncertainties and other factors: changes in regulation and the regulatory environment; competition in the markets in which PAETEC operates; the continued availability of necessary network elements from competitors; PAETEC’s ability to manage and expand its business and execute its acquisition strategy, to adapt its product and service offerings to changes in customer preferences, and to convert its existing network to a network with more advanced technology; effects of network failures, systems breaches, natural catastrophes and other service interruptions; and PAETEC’s ability to service its indebtedness and to raise capital in the future. PAETEC disclaims any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Additional Information and Where to Find it
PAETEC Holding Corp. will file with the SEC a registration statement on Form S-4, which will contain a proxy statement/prospectus regarding the proposed merger transaction, as well as other relevant documents concerning the transaction. WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS AND THESE OTHER DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT PAETEC, MCLEODUSA INCORPORATED AND THE PROPOSED TRANSACTION. A definitive proxy statement/prospectus will be sent to PAETEC’s stockholders seeking their approval of the transaction and to security holders of McLeodUSA Incorporated. Investors and security holders may obtain a free copy of the registration statement and proxy statement/prospectus (when available) and other documents filed by PAETEC with the SEC at the SEC’s web site at www.sec.gov. Free copies of PAETEC’s SEC filings are available on PAETEC’s web site at www.paetec.com and also may be obtained without charge by directing a request to PAETEC Holding Corp., One PAETEC Plaza, Fairport, New York 14450, Attn: Investor Relations.
PAETEC and its directors and executive officers may be deemed, under SEC rules, to be participants in the solicitation of proxies from PAETEC’s stockholders with respect to the proposed transaction. Information regarding PAETEC’s directors and executive officers is included in its annual report on Form 10-K filed with the SEC on April 2, 2007. More detailed information regarding the identity of potential participants and their direct or indirect interests, by securities holdings or otherwise, will be set forth in the registration statement and proxy statement/prospectus and other documents to be filed with the SEC in connection with the proposed transaction.
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AT&T expands services in Middle East
LM Ericsson has selected AT&T to provide an advanced VPN across the Middle East
By Grant Gross, IDG News Service
September 10, 2007
AT&T is pumping up its services in the Middle East by expanding its network in the region and building up its local presence there, the company announced Monday.
In addition, Telefonaktiebolaget LM Ericsson has selected AT&T to provide an advanced VPN (virtual private network) across the Middle East, AT&T said.
An AT&T network node being deployed in Jeddah, Saudi Arabia, in cooperation with Saudi Telecommunications and NavLink is expected to be operational by the end of the year, AT&T said. AT&T owns a minority stake of NavLink.
Data infrastructure from AT&T will allow AT&T and NavLink customers to directly connect to Saudi Telecommunications' nationwide MPLS (Multiprotocol Label Switching) network, which is the largest in the Middle East.
AT&T will also deploy a new global network node in Kuwait, with cooperation from QualityNet, a local provider of data networking services. The companies will work with NavLink to activate MPLS node during 2008, AT&T said.
QualityNet will host the global network node and allow AT&T to offer VPN services to Kuwaiti customers seeking global connectivity and to AT&T's existing multinational customers seeking to expand in the Middle East.
AT&T currently has network facilities operating in the United Arab Emirates and Qatar. These expansion are part of AT&T's $750 million global investment program announced earlier this year.
In the coming months, AT&T plans to hire more sales and support employees in Dubai, it said.
In the Ericsson deal, worth $6 million, AT&T will provide VPN services to support Ericsson's growing business activities in Qatar, Bahrain, Kuwait, Jordan, Saudi Arabia, Lebanon, Oman, and the United Arab Emirates. The agreement builds on a relationship between the two companies in which AT&T provides network services to Ericsson's business in Europe, the Middle East, Africa and the Americas.
The key requirements for the deal included a reliable network, a comprehensive service level agreement and speedy implementation, Carl-Magnus Månsson, chief information officer of Ericsson, said in a statement.
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Inc. 500 Lists Tout Telecom Companies
By: Cara Sievers
Inc. Magazine revealed its 26th annual list of America's 500 fastest-growing private companies last week, and the list shows telecommunications as one of the top growth industries.
The telecommunications category of companies grew by 1,056.5 percent on average, making it one of the top five most notable median growth categories, preceded by environmental services, food and beverage, and media and health. The largest business category is IT Services, with 56 Inc. 500 companies listed.
Cedar Point Communications, a provider of integrated VoIP switching technologies for the service provider and enterprise industries, was the sole telecommunications company in the top 10. Cedar Point was recognized as the second-fastest growing private company and the fastest growing private telecommunications company in the United States, with a revenue growth rate of 14,853.3 percent from 2003-06. In addition to being named to the top spot in telecommunications, Cedar Point also was named as the No. 1 company in two other categories: Companies Intending to Go Public, and Companies in the Boston-Cambridge-Quincy, Mass., and New Hampshire region.
"Our growth over the past several years has been a testament to the vision of our founding team, the hard work of our employees and the loyalty of our customer base," said Andy Paff, president and CEO of Cedar Point Communications. "We're pleased to have been recognized in a leadership position among private industry, and are grateful to the Inc. 500 team for their consideration."
Gracing the Top 10 Inc. 500 Companies Ranked by Revenue list was Granite Telecommunications. Granite reported revenue of $206.6 million and was ranked as No. 296 on the list.
Telecom was present throughout the various categorical designations as well. Companies like Credant Technologies (No. 15 on the list), a company that provides authentication software that protects mobile computing devices such as smartphones and laptops, appeared in the security category, which was chock full of telecom-related companies. And in the software section, companies like Five9 (No. 136), which makes Web-based software for small and midsized call centers; and BroadSource (no. 385) which provides hosted software and data processing services to help midsize companies track and manage their voice, data and wireless spending.
There were 24 companies categorized as telecommunications on the Inc. 500 list. They employed a total of 2,448 people and boasted a total revenue of $689.9 million. The named companies were:
Cedar Point Communications, No. 2
Santur, No. 12
Ethertronics, No. 52
Broadband National, No. 57
MDI Access, No. 64
GotVMail Communications, No. 66
Rizzo Consulting, No. 98
InnoPath Software, No. 102
Southern Light , No. 151
User Telecommunications & Technologies, No. 165
Genband, No. 194
Bandwidth.com, No. 201
Integrity Communications, No. 204
GetWireless, No. 248
Host.net, No. 251
Granite Telecommunications, No. 296
5Linx Enterprises, No. 336
VoIP Supply, No. 359
TeleSource, No. 405
Adex, No. 425
IneoQuest, No. 427
Masergy, No. 437
Vcom Solutions, No. 445
Vocera Communications, No. 462
This year Inc. expanded the Inc. 500 list tenfold, to create the first-ever Inc. 5,000, the most comprehensive look at the most important segment of the economy - America's independent-minded entrepreneurs.
Of course, telecom companies were represented on the list, including CornerStone Telephone Co. at No. 736 with three-year sales growth of 458 percent. CornerStone was listed as the third-fastest telecommunications company in New York and the 34th fastest-growing in the United States.
"We are proud to have made it on the first Inc. 5,000 list," said Dan Yamin, co-founder and CEO of CornerStone Telephone Company. "Our goal was to make it to the top 1,000, which we exceeded and we hope our growth in 2007 will place us further up on the list in 2008."
The 2007 Inc. 500 lists measure revenue growth from 2003 through 2006. To qualify, companies had to be U.S.-based and privately held, independent - not subsidiaries or divisions of other companies - as of Dec. 31, 2006, and have had at least $200,000 in revenue in 2003, and $2 million in 2006.
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