Paetec, US LEC Sign $1.3B Merger

Combination increases footprint of SMB VoIP service provider.

By Ed Sutherland | Posted Aug 14, 2006
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US LEC , provider of telecom services to enterprises along the East Coast, announced it will merge with Paetec, a private VoIP equipment-maker, to form a new company worth $1.3 billion.

Paetec and US LEC will become subsidiaries of New Paetec, a holding company generating $1 billion in annual revenue with $40 million in yearly savings starting in 2008, according to the companies.

Savings will come from a wider service footprint and combining staff.

Paetec CEO Arunas Chesonis becomes CEO of New Paetec and US LEC Chairman Richard Aab becomes vice chairman of the new company.

New Paetec will be headquartered in Fairport, N.Y. and maintain US LEC's Charlotte, N.C., operations. The new company will have 45,000 customers in 52 of the top 100 metropolitan service areas, including those along the East and West Coasts, as well as Chicago, according to the companies.

Paetec shareholders will own two-thirds of the new company, US LEC stock-holders will own a third.

While US LEC shareholders will see a one-for-one exchange of stock, Paetec shareholders will get 1.623 shares in the new company, according to the announcement.

"We are expanding each others' footprint," Paetec CEO Arunas Chesonis told internetnews.com.

While merger mania is sweeping the telecom industry, today's agreement wasn't born from necessity, Chesonis said.

The deal, expected to close in the fourth quarter, awaits approval of US LEC and Paetec shareholders, completion of $850 million in debt financing and $268 million in stock buy-back from US LEC.

The Charlotte, N.C.-based US LEC also reported an upswing in revenue and customers.

The telecom services provider announced earning $106.7 million, up from $95.3 million during the same period a year ago.

US LEC said losses fell during the second quarter to $7.6 million, down from $8.9 million during the same time last year.

The growth of data services accounted for $34.3 million, nearly a third of total revenue, according to the telecom services company.

US LEC also settled its dispute with Qwest over inter-exchange carrier access revenue.

The resolution enables the company "to move on with the business at hand," according to a statement by Aaron Cowell, US LEC's president and CEO.

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