Tuesday, September 18, 2007

Paetec Gets McLeod

As consolidation continues in the alternative carrier space, Paetec buys McLeodUSA in a move that I just can't understand. The midwest CLEC has been BK twice and was planning an IPO in 2007. (Don't ask!)

Then news came today that the privately-owned CLEC is to be bought by PAETEC Holding Corp. in an all-stock merger worth $557 million. The deal, which consists of $492 million in PAETEC common stock and $65 million in net debt assumption, gives PAETEC significant new fiber optic network assets and a footprint spanning 18 states. [phone+]

While this deal appears good for McLeod and the footprint, the timing seems funny since the integration of USLEC and PAETEC has not completed yet. Maybe Paetec wanted to book more revenue than was gonna show organically. Or maybe this was a one-time deal (certainly not a fire sale at a half billion dollars).

From EDGAR, "As of December 31, 2006, we had nearly 1,600 employees serving approximately 101,900 residential telephone lines, 283,500 business lines and 14,300 T-1 circuits. For the year ended December 31, 2006, we had revenue of $544.7 million and incurred an operatingloss of $15.3 million. At December 31, 2006, we had stockholders' equity of$217.1 million and an accumulated deficit of $28.3 million."

Paetec paid a little bit more than 1 times Annual revenue for the McLeod, but what does the new company do with the 102k resi lines? And with all those fiber assets that are being mentioned, how is it that McLeod chased Resi and not medium sized business? Here's hoping theirs a strategy (other than let's get as big as we can).

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