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Paetec to Acquire McLeodUSA
Sep 2007
FAIRPORT, N.Y., Sept. 19, 2007 -- Paetec Holding Corp. announced this week it will acquire McLeodUSA Inc. of Cedar Rapids, Iowa, in an all-stock merger for a total of $557 million, including $492 million in stock and $65 million in debt assumption.

"This transaction is squarely in line with our corporate strategy and positions Paetec as one of the largest nationwide competitive communications providers serving business customers," said Arunas A. Chesonis, chairman and CEO of Paetec. "We'll now have nearly 4000 employees, and we plan to increase our presence into 82 of the top 100 MSAs in 2008. With this combined footprint, we offer a compelling alternative to the legacy carriers."

Paetec is acquiring an extensive fiber optic network and new markets in 18 states, including the cities of Dallas, Houston, Denver, Detroit, Phoenix, Seattle and Cleveland. The combined company expects to have approximately 3.4 million access line equivalents in service and a local presence in 47 of the top 50 metropolitan statistical areas in the country in 2008.

Privately held McLeodUSA owns and manages one of the largest high-capacity fiber networks in the nation, spanning 20 Midwest, Southwest, Northwest and Rocky Mountain states. The network is comprised of about 13,000 intercity route miles and approximately 4000 metro route miles. The combined company will operate 77 traditional voice-switching facilities and 39 IP soft switches. McLeodUSA has operations in 20 states, while Paetec operates in 23 states and the District of Columbia.

Under the agreement, which was unanimously approved by the boards of both companies, McLeodUSA will become a Paetec subsidiary. Current McLeodUSA shareholders will receive 1.30 shares of Paetek common stock for every share of McLeodUSA common stock they own. Approximately 40 million shares of stock will be issued to holders of currently outstanding McLeodUSA stock. Paetec has approximately 102.1 million shares of common stock outstanding. McLeodUSA's employee stock options -- of which 2.7 million are outstanding -- will be converted into options to purchase Paetec shares, the company said.

After the closing, which is expected in the first quarter of 2008, Arunas A. Chesonis will remain Paestec's chairman and CEO. Keith Wilson, chief financial officer of PAETEC, and EJ Butler Jr., chief operating officer, will also remain in their respective roles. Paetec will continue to be headquartered in Fairport and will maintain McLeodUSA's operations in Cedar Rapids, Iowa, and other regional centers, including Charlotte, N.C. After the closing, Paetec's board will add a director, to be designated by McLeodUSA.

The transaction creates a company with an estimated $2.7 billion enterprise value and is expected to produce cost synergies of approximately $20 million in the first year following the closing, and run-rate synergies of approximately $30 million during the second year post-closing, Paetec said in a statement. For the 12 months up to June 30, 2007, on a pro forma basis, the combined company generated approximately $1.6 billion in revenue and $263 million in adjusted EBITDA, including $30 million in synergies, it said.

The merger is subject to approval by both Paetec and McLeodUSA shareholders and customary closing conditions. More information will be included in Paetec's Form 8-K report to be filed with the Securities Exchange Commission.

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