PAETEC to acquire McLeodUSA

Sept. 17, 2007
SEPTEMBER 17, 2007 — PAETEC Holding Corp. signed a definitive agreement to acquire McLeodUSA Incorporated for $557 million in an all-stock merger. McLeodUSA, a privately held communications service provider focused on business customers, will become a PAETEC subsidiary.

SEPTEMBER 17, 2007 — PAETEC Holding Corp. (Fairport, NY) signed a definitive agreement to acquire McLeodUSA Incorporated (Cedar Rapids, IA) for $557 million in an all-stock merger. McLeodUSA, a privately held communications service provider focused on business customers, will become a PAETEC subsidiary.

The merger comprises $492 million in PAETEC common stock and $65 million in net debt assumption. The all-stock structure reduces PAETEC's debt ratio and is reported to be financially beneficial to both companies. The combined company will boast about 4,000 employees, 3.4 million access line equivalents in service and local presence in 47 of the top 50 metro statistical areas (MSAs) in 2008. PAETEC will retain McLeodUSA's operations in Cedar Rapids, IA, and major regional centers. McLeodUSA will appoint one member to PAETEC's board of directors as well.

McLeodUSA offers high-capacity fiber networks in 20 midwestern, southwestern, northwestern, and Rocky Mountain states. It will add 13,000 intercity route miles and about 4,000 metro route miles to PAETEC's networks. The combined company will operate 77 traditional voice-switching facilities and 39 IP soft switches. PAETEC operates in 23 states, as well as Washington D.C.

Merging with PAETEC will accelerate McLeodUSA's market penetration to high-value integrated-access customers, says Royce J. Holland, CEO, McLeodUSA. Our goal is to increase presence in 82 of the top 100 MSAs in 2008, adds Arunas A. Chesonis, chairman and CEO, PAETEC. The combined enterprise will have an estimated $2.7 billion value, with cost synergies of about $20 million in the first year following closing, and $30 million in the second year.

The boards of directors for both companies unanimously approved the merger. The transaction is subject to approval by both PAETEC and McLeodUSA shareholders, states where the companies have operations, and other customary conditions. 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.

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