US LEC To Merge With N.Y. Firm In $1.3 Billion Deal
Posted August 15, 2006
CHARLOTTE, N.C. — US LEC (Nasdaq: CLEC) is merging with privately held PAETEC Communications in a deal worth $1.3 billion.
The companies announced the merger Monday before the markets opened.
US LEC shareholders will own one third of the new venture, which will be called New PAETEC. The combined company will be public and trade on the Nasdaq under the symbol CLEC, which had been utilized by US LEC.
US LEC is a competitive local exchange carrier (CLEC) based in Charlotte with operations across the Southeast, including the Triangle. It provides telecommunications, data and Internet services across a 16-state network.
"This is indeed an exciting day for us," said Richard Aab, chairman of US LEC, in a conference call to discuss the sale. He called the merger an "exciting strategic combination" and said the two companies were "highly complimentary".
PAETEC, which is based in Fairport, N.Y., also provides communications services focused on businesses.
Headquarters for New PAETEC will be based in New York, but the US LEC operation in Charlotte will be maintained, the companies said in a joint statement. The merged company will have some 45,000 customers, operate in 52 of the largest 100 U.S. markets and produce some $1 billion in revenues.
No job cuts were specified, but the companies said they had already identified $40 million in annual cost savings beginning in 2008. Some $25 million will be saved the first year.
Facilities and operations will be consolidated, the companies said.
US LEC management will take a lower profile in the merged company. Arunas Chesonis, the founder of PAETEC, will serve as chairman and chief executive officer of New PAETEC. Aab, US LEC's chairman, will serve as vice chairman.
Among the casualties in the merger is Aaron Cowell, US LEC's chief executive officer.
"Aaron has decided to pursue other opportunities," Aab said in a conference call to discuss the sale. Cowell will remain in charge of US LEC until the merger is completed, Aab said.
Keith Wilson, the chief financial officer of PAETEC, will serve as CFO of the merged company. E.J. Butler, chief operating officer of PAETEC, will be the COO.
J. Lyle Patrick, chief financial officer of US LEC, has been tasked to lead integration efforts as vice president of integration.
No role was spelled out for Aaron Cowell, the president and CEO of US LEC.
The deal is expected to close in the fourth quarter.
The transaction includes US LEC buying out Class A stockholders Bain Capital and Thomas H. Lee Partners for $268 million.
The merger news sent US LEC shares up 57 cents to close Monday at $5.35.
US LEC shares closed at $4.77 on Friday. The stock has risen steadily since hitting a 52-week low of $1.51 last December 21. Its 52-week high is $5.87.
On March 15, US LEC shares closed at $1.94. As of May 17, the price was $2.99.
On Monday morning, US LEC said it lost $7.6 million, or 25 cents per share, in the second quarter. That's a $1.2 million improvement for the same quarter in 2005.
Revenues increased to $106.7 million, up $4.1 million from the first quarter of 2006 and $11.4 million from one year ago.
Date revenues increased to $34.3 million, making up 32 percent of US LEC revenues.
As of June 30, US LEC had 27,800 customers. Of those, 21,500 utilized data services.