DECEMBER 21, 2010 -- Fresh off of finalizing its purchase of ITC^Deltacom, EarthLink, Inc. (NASDAQ: ELNK) has continued shopping for fiber. The ISP has announced a definitive merger agreement via which it will acquire One Communications Corp. for $370 million, which includes payment of approximately $285 million of One Comm net debt. EarthLink expects the deal to close in the first half of 2011, pending the customary regulatory approvals.
One Comm is a privately held, multi-regional integrated telecommunications services provider. With approximately 1,500 employees, One Comm serves approximately 113,000 small and mid-sized business customers in 17 states across the Northeast, Mid-Atlantic, and Upper Midwest. One Comm's products include a range of data, voice (both traditional and VoIP,) and integrated voice/data offerings with bandwidths ranging from T1s to fiber-based speeds. One Comm's network consists of 629 collocations, connected by more than 11,700 route miles of fiber.
One Comm stockholders have the right to elect to receive the net merger consideration in the form of cash or EarthLink common stock. The transaction purchase price represents a multiple of approximately 3.7X adjusted EBITDA (a non-GAAP measure) for the 12 months ended September 30, 2010, including $20 million in expected cost synergies and excluding one-time transaction costs.
However, One Comm's shareholders will retain liability for all costs relating to One Comm's pending litigation with Verizon New York Inc. The merger has been approved by the boards of directors of both companies and the stockholders of One Comm.
EarthLink listed several benefits the pending acquisition will provide:
- a strong IP network footprint in the Northeast, Midwest, and Mid Atlantic regions
- overlapping connection cities with EarthLink Business (formerly Deltacom) long-haul routes in major markets including Washington, DC, Baltimore, Philadelphia, and New York City;
- geographical expansion and scale for managed IP services product strategy supported by One Comm’s employee base
- a foundation for potential future acquisitions of revenue bases in the region.
EarthLink plans to integrate One Comm into its newly established EarthLink Business division, which currently consists of products and capabilities of its former New Edge Network, Deltacom, and EarthLink Business Solutions divisions. After the closing of the transaction, EarthLink Business will operate a nationwide IP network with underlying fiber assets in 30 of the top 50 MSAs in the country. The combined fiber network will span approximately 28,000 route miles across 27 states, with 923 collocations, 55 IP and circuit-based switches and 68 metro fiber rings, EarthLink asserts.
"The acquisition of One Communications is a significant development in further transforming EarthLink into one of the largest IP services companies in the U.S. We will now have a fiber-based IP network that covers a substantial portion of the key business markets across the eastern half of the United States, as well as substantial revenue and EBITDA scale in our strategic line of business," said EarthLink chairman and CEO Rolla P. Huff. "We fully recognize the declining trend line of One Comm's revenue and EBITDA as the company has struggled to deal with the uncertainty of their debt covenants and pending litigation. We have taken the opportunity to acquire their network assets and customer base at an attractive valuation multiple. We are confident that EarthLink's nationwide IP service offering, substantial free cash flow, strong balance sheet, and strong track record of customer service and operating excellence will add meaningful stability to the financial and operating performance of the company."
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