EarthLink agrees to acquire ITC^Deltacom in $516 million transaction

By Jennifer Lanning Drey

Savannah, Ga., Oct. 1 - EarthLink Inc. has entered into a definitive agreement to acquire ITC^Deltacom in a transaction valued at $516 million, including the assumption of ITC^DeltaCom's outstanding $325 million of 10½% senior secured notes due 2016, the companies announced Friday.

EarthLink expects to use about $200 million, net of cash acquired, on the transaction, Bradley Ferguson, EarthLink's chief financial officer, said during a Friday conference call held to discuss the agreement.

EarthLink had approximately $740 million of cash at June 30.

"These assets coupled with our strong balance sheet and continued meaningful cash flow will give us the unique ability to further enhance the value of the combined companies, both organically and strategically," Earthlink chief executive officer Rolla Huff, said during the call.

At June 30, the combined companies would have had approximately $581 million of outstanding debt.

The June 30 pro forma gross debt to last-12-months EBITDA ratio would have been 1.84 times and approaching zero times on a net basis, Ferguson said.

"Subsequent to the transaction, EarthLink will continue to have a strong and underleveraged balance sheet, especially when compared to others in the telecom sector," he said.

EarthLink said the acquisition will enable it to create a leading IP infrastructure and solutions company by combining its existing ISP and IP-focused businesses with ITC^DeltaCom's integrated communications business.

Unlevered free cash flow

Also during the call, Huff said that when considering potential transactions, EarthLink had targeted companies that either had positive unlevered free cash flow or the immediate ability to generate unlevered free cash flow.

ITC^DeltaCom will enhance EarthLink's ability to better maximize the cash flow in its consumer ISP asset by allowing it to accelerate the elimination of some of the fixed costs required to support the ISP revenue stream, Huff also said.

"This acquisition puts us on a clear strategic path that plays to the core strengths and strategic advantages inherent within Earthlink while remaining substantially unlevered and maintaining a meaningful future cash flow that will provide financial flexibility to continue to improve our business into the future," he said.

The $516 million purchase price represented a multiple of 4.7 times adjusted EBITDA for the 12 months ended June 30, including $20 million of expected cost synergies and adjusted for one-time transaction costs, Huff said.

The transaction is expected to close in the fourth quarter or first quarter of 2011.

ITC^DeltaCom is a Huntsville, Ala.-based provider of integrated telecommunications and technology services.

EarthLink is an Atlanta-based internet service provider.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.