Web Host EarthLink Acquires Telecom One Communciations for $370M

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Web hosting provider EarthLink (www.earthlink.net) announced on Monday it has aqcuired telecom One Communications Corp.(www.onecommunications.com) for $370 million, including payment of approximately $285 million of One Comm net debt.

EarthLink says the acquistion will provide a strong IP network footprint in the Northeast, Midwest and Mid Atlantic regions, overlapping connection cities with EarthLink business long-haul routes in markets including Washington, D.C., Baltimore, Philadelphia and New York City, geographical expansion and scale for managed IP services product strategy, and a foundation for potential future acquisitions of revenue bases in the region.

“The acquisition of One Communications is a significant development in further transforming EarthLink into one of the largest IP services companies in the US. We will now have a fiber-based IP network that covers a substantial portion of the key business markets across the eastern half of the United States, as well as substantial revenue and EBITDA scale in our strategic line of business,” EarthLink chairman and chief executive officer Rolla P. Huff said in a statement. “We fully recognize the declining trend line of One Comm’s revenue and EBITDA as the company has struggled to deal with the uncertainty of their debt covenants and pending litigation. We have taken the opportunity to acquire their network assets and customer base at an attractive valuation multiple. We are confident that EarthLink’s nationwide IP service offering, substantial free cash flow, strong balance sheet, and strong track record of customer service and operating excellence will add meaningful stability to the financial and operating performance of the company.”

One Comm has approximately 113,000 small- and medium-sized business customers in 17 states. Its network consists of 629 colocations, connected by more than 11,700 route miles of fiber.

With the aqcuisition, the combined fiber network will span approximately 28,000 route miles across 27 states, with 923 colocations, 55 IP and circuit-based switches and 68 metro fiber rings. EarthLink will have nearly 3,500 employees across the US.

EarthLink plans to integrate One Comm into its new EarthLink Business division, which consists of products and capabilities of its former New Edge Network, Deltacom, and EarthLink Business Solutions divisions.

“As part of our evolution, our management team and Board of Directors have carefully evaluated our capital structure alternatives for our transformed business. Given the substantial opportunities we believe exist for continued value creation by investing in our strategic line of business, the Board of Directors has decided to adjust the EarthLink quarterly dividend rate to $0.05 per share. We are pleased that EarthLink will be uniquely positioned in this industry to offer its shareholders a dividend yield,” Huff said.

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