EarthLink, www.earthlink.net – the widely-known IP infrastructure and services provider, reported a definitive merger agreement to acquire integrated telecom firm, One Communications Corp. (“One Comm”), for $370M.
Chairman and CEO of ELNK, Rolla P. Huff, called the acquisition a dominant play which scoops up the infrastructure of One Comm, a dominant force in the market across much of the Eastern US and integrates it into the newly formed EarthLink Business division.
The merger, which was approved by the Board of Directors of each company, as well as One Comm’s stockholders, puts ELNK in control of a massive nationwide IP network with a fiber footprint in the top 50.
Let’s break down the salient logistics here:
• One Comm serves 113k small- to mid-sized businesses across 17 states, including major markets like Boston, Baltimore, New York, Philadelphia and D.C.
• Resulting fiber network would be some 28k route miles spanning 27 states (923 collocations, 55 IP/circuit switches and 68 metro fiber rings)
• Employee base nationwide expands 75% to 3,500, underwriting geographic expansion and managed IP services product strategy with highly motivated and well trained personnel
• EarthLink Business structure fuses the Deltacom acquired capabilities with One Comm assets (in addition to New Edge Network/EarthLink Business Solutions), creating a market-driven provider of choice paradigm throughout a huge operating space
Huff explained that the Company recognizes the revenue and EBITDA performance of One Comm and assured investors that ELNK’s strong balance sheet, cash flow and market position would ameliorate those factors which have hindered One Comm’s performance thus far.
Huff noted the incredible opportunity for additional strategic initiatives this acquisition opens up for ELNK and announced that the Board has decided to adjust the quarterly dividend rate to $0.05 per share.
Key details of the transaction and ELNK’s financial position are as follows:
• The $370M payment includes some $285M to resolve One Comm debt
• Transaction purchase price of roughly 3.7 times Adjusted EDITDA for the twelve-month period (ended Sept. 30, 2010) and includes $20M for cost synergies
• EarthLink rounded out Q3 2010 with $572M in cash and marketable securities pro forma the recent ITC^DeltaCom acquisition for $527M
• EarthLink has $146M available under current authorization in its share repurchase program
• One Comm shareholders may receive net merger consideration in cash or ELNK stock and will retain liability for costs associated with the pending One Comm/Verizon litigation
• Pro forma combined revenue for the twelve-month from ELNK/Deltacom/One Comm would have been $1.64B ($1.15B from business service segments)