EarthLink to Acquire One Communications Corp.

Acquisition expands EarthLink Business fiber network and customer base in Northeast, Midwest and Mid-Atlantic regions.

EarthLink, Inc., an internet service provider, yesterday announced a definitive merger agreement under which it will acquire One Communications Corp. (One Comm), a telecommunications solutions provider, for $370 million, which includes payment of approximately $285 million of One Comm net debt. The company mentions that One Comm stockholders have the right to elect to receive the net merger consideration in the form of cash or EarthLink common stock. The transaction purchase price represents a multiple of approximately 3.7x Adjusted EBITDA for the twelve months ended September 30, 2010, including $20 million in expected cost synergies and excluding one-time transaction costs. One Comm's shareholders will retain liability for all costs relating to One Comm's pending litigation with Verizon New York Inc. It adds that the merger has been approved by the Boards of Directors of both companies and the stockholders of One Comm.

The company says that the acquisition will provide it with:

* A strong IP network footprint in the Northeast, Midwest, and Mid Atlantic regions
* Overlapping connection cities with EarthLink Business (formerly Deltacom) long-haul routes in major markets including Washington, D.C., Baltimore, Philadelphia and New York City
* Geographical expansion and scale for managed IP services product strategy supported by One Comm employee base
* A foundation for potential future acquisitions of revenue bases in the region

According to it, One Comm serves approximately 113,000 small and mid-sized business customers in 17 states across the Northeast, Mid-Atlantic and Upper Midwest, including the major metropolitan markets of Boston, New York, Philadelphia, Baltimore and the District of Columbia. One Comm's products include a wide range of data, voice (both traditional and VoIP) and integrated voice/data solutions that scale with bandwidths ranging from T1s to fiber-based speeds. One Comm's network consists of 629 collocations, connected by more than 11,700 route miles of fiber.

The company states that it plans to integrate One Comm into its newly established EarthLink Business division, which currently consists of products and capabilities of its former New Edge Network, Deltacom and EarthLink Business Solutions divisions. After the closing of this transaction, EarthLink Business will operate a nationwide IP network with underlying fiber assets in 30 of the top 50 MSAs in the country. The combined fiber network will span approximately 28,000 route miles across 27 states, with 923 collocations, 55 IP and circuit-based switches and 68 metro fiber rings. With the addition of One Comm, the company will have nearly 3,500 employees nationwide.

It further states that the agreement provides for the company's acquisition of One Comm by means of a merger of a newly formed indirect subsidiary with and into One Comm, with One Comm surviving as an indirect wholly owned subsidiary of the company. The agreement contains customary representations, warranties, covenants, closing conditions and escrow and indemnification protection. All of One Comm's outstanding indebtedness will be paid by the shareholders of One Comm from the cash proceeds of the merger. The transaction is expected to close in the first half of 2011.

The company avers that Greenhill & Co. LLC acted as its financial advisor and rendered a fairness opinion to its Board of Directors in connection with the transaction. Houlihan Lokey Capital, Inc. also rendered a fairness opinion to the company's Board. King & Spalding LLP was its M&A legal counsel. Blackstone Advisory Services L.P. acted as financial advisor to One Comm, and Kelley, Drye & Warren LLP was its legal counsel.

"The acquisition of One Communications is a significant development in further transforming EarthLink into one of the largest IP services companies in the U.S. 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," said EarthLink Chairman and Chief Executive Officer Rolla P. Huff. "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."

"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," added Huff.