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Paetec, US Lec to Merge in $1.3B Deal

Photonics.com
Aug 2006
CHARLOTTE, N.C. & FAIRPORT, N.Y., Aug. 14, 2006 -- Telecommunications company US Lec Corp. and privately held communications solutions provider Paetec announced today that they will merge in a $1.3 billion transaction.

The combined company is expected to generate nearly $1 billion in revenue, the companies said, and cost savings resulting from the elimination of duplicated facilities and operations is expected to be $25 million in the first year and $40 million annually beginning in 2008. The combined company will have over 45,000 customers and will operate in 52 of the top 100 metropolitan service areas (MSAs) in the US. The companies said a substantial portion of network cost "synergies" and capital expenditure savings are expected to come from increased scale and the integration of the companies' network operations and IT. They did not indicate how much would come as a result of workforce reductions.

Under the terms of the merger, which was approved unanimously by the boards of directors of both companies, Paetec and US Lec will become wholly-owned subsidiaries of a new publicly owned holding company, New Paetec, with US Lec shareholders owning approximately one-third and Paetec shareholders owning approximately two-thirds of the new company. Upon closing, US Lec shareholders will receive one share in the new holding company in exchange for each share of US Lec that they currently own, and Paetec shareholders will receive 1.623 shares for each share of Paetec that they own. Based on US Lec's closing stock price on Friday, the total enterprise value of the new company will be approximately $1.3 billion.

US Lec and Paetec will finance the transaction through a combination of debt and cash on hand. Deutsche Bank Securities Inc., Merrill Lynch & Co. and CIT Group Inc. have agreed to finance $850 million for the transaction, which includes refinancing both companies' debt.

Paetec Chairman and CEO Arunas Chesonis will hold that same position in the new company, and US Lec Chairman Richard Aab will become vice chairman. Paetec CFO Keith Wilson will keep his position in the new company, as well as Paetec COO EJ Butler. US Lec CFO J. Lyle Patrick will become executive vice president of integration in the new company. The company will have its headquarters in Fairport, where Paetec is currently located. It will also maintain US Lec's operations in Charlotte, N.C., and its presence in other markets, including Chicago and the West Coast.

The transaction is subject to approval by a majority of both US Lec and Paetec shareholders, customary closing conditions and regulatory approvals. The companies said they expect the deal to close in the fourth quarter of 2006.

For more information, visit: www.paetec.com or www.uslec.com


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