Earthlink to buy ITC^Deltacom

Oct. 4, 2010
OCTOBER 4, 2010 -- ISP EarthLink Inc. says it will acquire ITC^DeltaCom, Inc., an integrated communications services provider to the southeastern United States, for $3.00 per share in cash. The transaction is valued at approximately $516 million, including assumption of $325 million in debt.

OCTOBER 4, 2010 -- ISP EarthLink Inc. (NASDAQ: ELNK) says it will acquire ITC^DeltaCom, Inc. (OTC: ITCD.OB), an integrated communications services provider to the southeastern United States, for $3.00 per share in cash. The transaction is valued at approximately $516 million, including assumption of $325 million in debt.

The purchase price represents a multiple of approximately 4.7x adjusted EBITDA for the 12 months ended June 30, 2010, including expected cost synergies and excluding one-time transaction costs.

Earthlink asserts the merger will create “a leading IP infrastructure and solutions company” that combines Earthlink's existing ISP and IP-focused businesses with Deltacom's integrated communications business. Deltacom's 16,400 mile fiber-optic network in the Southeast -- over 75% of which is owned or controlled under Indefeasible Right of Use (IRU) agreements -- includes a 14-state SONET backbone with 35 metro fiber rings, 294 collocations, and 20 voice and data switches.

Deltacom currently serves over 32,000 small and mid-size businesses, multi-location enterprises, government agencies, and wholesale customers in the southeast with services including Multi-Protocol Label Switching (MPLS) and IP-based products. Together, the companies will offer customers a comprehensive suite of Internet, telecommunications and managed services, Earthlink asserts.

"As the demand for high-quality IP infrastructure continues to rapidly grow, we see a significant opportunity to focus these combined IP networking and managed service capabilities with our strong balance sheet to meet this increasing demand from enterprise-level customers, wireless carriers, and multi-location national accounts while creating long-term value for our shareholders," said EarthLink Chairman and CEO Rolla P. Huff. "The capabilities we acquire with this acquisition will be complemented by our existing New Edge Networks business as we combine our nationwide MPLS network capabilities with Deltacom's state-of-the-art infrastructure. The combined company will be especially well positioned to serve Fortune 1000 companies across the country, one-quarter of which are headquartered in Deltacom's footprint. In addition, the Deltacom assets will enable us to further reduce our consumer ISP cost structure, which we believe will result in additional incremental cash flow from that business in years to come."

Added Huff, "This acquisition will position the company to provide leading edge IP solutions, while allowing us to continue to generate significant cash and retain the financial flexibility and capacity to invest in additional strategic opportunities. It also makes us unique in the industry, as we will be substantially under-levered and will continue to pay a dividend."

With the acquisition, EarthLink's employee ranks will grow from approximately 575 people to just under 2,000 people. The company will continue to be headquartered in Atlanta, GA, and led by Chairman and CEO Huff, President and Chief Operating Officer Joseph M. Wetzel, and Chief Financial Officer Bradley A. Ferguson.
The agreement provides for EarthLink's acquisition of Deltacom by means of a merger of a newly formed subsidiary with and into Deltacom, with Deltacom surviving as a wholly owned subsidiary of EarthLink. The agreement contains customary representations, warranties, covenants and closing conditions.

Immediately following the execution of the merger agreement, funds affiliated with Welsh, Carson, Anderson & Stowe, and Tennenbaum Capital Partners, LLC, who collectively own approximately 62% of Deltacom's outstanding shares of common stock, executed a written consent adopting the merger agreement. As a result, no further stockholder action will be required to adopt the merger agreement or approve the merger (although the merger agreement permits the board of directors of Deltacom to exercise termination rights in certain circumstances as required by its fiduciary duties). Deltacom will file with the Securities and Exchange Commission and mail to its stockholders, as promptly as practicable, an information statement describing the merger agreement and the merger.

The merger, which the boards of directors of both companies have unanimously approved, will be completed upon the satisfaction of several conditions, including receipt of required regulatory approvals from the Federal Communications Commission and certain state public utilities commissions and expiration or termination of the waiting period under the Hart-Scott-Rodino Act. Subject to the fulfillment of these conditions, the transaction is expected to close in the fourth quarter of 2010 or the first quarter of 2011.

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