Time Warner Telecom Inc. (NASDAQ: TWTC), a leading provider of managed voice and data networking solutions for business customers, today announced it signed a definitive agreement to acquire Xspedius Communications, LLC., a privately held company which provides telecommunications services to businesses across the U.S.
Under the terms of the agreement, Time Warner Telecom will pay total consideration of $531.5 million, consisting of $212.5 million in cash and $319 million in shares of Time Warner Telecom’s Class A Common Stock. The company will assume no debt in the acquisition.
Xspedius is a metro fiber-based provider of integrated communications services primarily to enterprise businesses as well as carrier customers. Xspedius provides a comprehensive suite of high quality services, including metro Ethernet, local and long distance voice, data and dedicated Internet access services, in 43 markets across 18 states and the District of Columbia.
“This acquisition significantly broadens the already extensive nature of our local assets and national capabilities,” said Larissa Herda, Chairman, CEO and President of Time Warner Telecom. “The marketplace continues to validate our long-held view of the value of last mile connectivity to enterprise customers. This strategic acquisition further expands our network reach and market density for serving multi-location and multi-city enterprise customers, increasing the number of markets we serve from 44 to 75, and enhances our ability to further fuel our enterprise growth.”
“For the full year 2007, we expect Xspedius’ stand alone operations to generate approximately $230 to $250 million of revenue, $40 to $50 million of Modified-EBITDA1 and $20 to $25 million in Unlevered Free Cash Flow2 before synergies and integration costs,” said Mark Peters, Time Warner Telecom’s Chief Financial Officer. “We expect to achieve significant annualized cost synergies of approximately $40 to $50 million within 12 to 18 months of closing, and expect $40 to $50 million in one-time investments to integrate the business. These integration costs include investments to interconnect our network assets in order to overlay our product portfolio to drive additional enterprise revenue growth.” Time
Warner Telecom expects to achieve the cost synergies by leveraging existing local and regional operating structures and optimizing network capabilities and costs.
The stock consideration is subject to a 20% symmetrical collar adjustment. This adjustment is based on the average share price of Time Warner Telecom’s Class A common shares for the 20 trading days prior to closing as compared to $14.57. The consideration will be adjusted for a stock price decrease in the form of additional cash and stock, or for a stock price increase by decreasing the stock consideration.
“We are looking forward to being an investor in Time Warner Telecom,” said Jim Lynch, representative of majority Xspedius owner, Thermo Capital Partners, and Chairman of Xspedius Communications. “Time Warner Telecom is clearly an innovative market leader. I am impressed with their ability to serve the enterprise customer with a broad range of services, their market success, and the scalability of their business model. This combination creates significant synergies and will enhance Time Warner Telecom’s overall growth rate.”
“The Xspedius team is enthusiastic about the opportunity to partner with Time Warner Telecom,” said Paul Pierron, President and CEO of Xspedius. “The enhancements this merger brings will provide our customers new and expanded service opportunities. The combination of these two companies solidifies Time Warner Telecom’s position as a leading national provider of network services to enterprise customers.”
Closing is expected within six months, and is subject to customary conditions, including the receipt of applicable federal and state regulatory approvals. The transaction has been approved by the required majority consent of equity holders of Xspedius Communications and does not require a Time Warner Telecom shareholder vote.
Evercore Partners acted as financial advisor to Time Warner Telecom, and Wachtell, Lipton, Rosen & Katz and Faegre & Benson acted as legal advisors. Brown Brothers Harriman acted as financial advisor to Xspedius Communications and Taft, Stettinius & Hollister acted as legal advisor.
Time Warner Telecom plans to conduct a webcast conference call on July 28, at 8:00 a.m. MDT (10:00 a.m. EDT). To access the webcast and the financial and statistical information to be discussed in the webcast, visit http://www.twtelecom.com under “Investor Relations.”
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