ATLANTA and HUNTSVILLE, Ala., Oct.
1 /PRNewswire-FirstCall/ -- EarthLink, Inc. (Nasdaq: ELNK),
one of the nation's leading Internet service providers, and
ITC^DeltaCom, Inc. (OTC Bulletin Board: ITCD), a leading provider
of integrated communications services to customers in the
southeastern United States, today
announced a definitive merger agreement under which EarthLink will
acquire ITC^DeltaCom (Deltacom) for $3.00 per share in cash. The transaction is
valued at approximately $516 million,
including assumption of $325 million
in debt. The purchase price represents a multiple of
approximately 4.7x Adjusted EBITDA (a non-GAAP measure, see
definition in "Non-GAAP Information for EarthLink" below) for the
twelve months ended June 30, 2010,
including expected cost synergies and excluding one-time
transaction costs.
The acquisition will enable EarthLink to create a leading IP
infrastructure and solutions company by combining its existing ISP
and IP-focused businesses with Deltacom's integrated communications
business. Deltacom's 16,400 mile fiber optic infrastructure
in the Southeast – over 75% of which is owned or controlled under
Indefeasible Right of Use (IRU) agreements – includes a 14-state
Synchronous Optical Network backbone with 35 metro fiber rings, 294
collocations and 20 voice and data switches. Deltacom
currently serves over 32,000 small and mid-size businesses,
multi-location enterprises, government agencies and wholesale
customers in the southeast with services including Multi-Protocol
Label Switching (MPLS) and IP-based products. Together, the
companies will offer customers a comprehensive suite of Internet,
telecommunications and managed services supported by an exceptional
team of people focused on best-in-class customer care.
"As the demand for high-quality IP infrastructure continues to
rapidly grow, we see a significant opportunity to focus these
combined IP networking and managed service capabilities with our
strong balance sheet to meet this increasing demand from enterprise
level customers, wireless carriers, and multi-location national
accounts while creating long-term value for our shareholders," said
EarthLink Chairman and Chief Executive Officer Rolla P. Huff. "The capabilities we
acquire with this acquisition will be complemented by our existing
New Edge Networks business as we combine our nationwide MPLS
network capabilities with Deltacom's state-of-the-art
infrastructure. The combined company will be especially well
positioned to serve Fortune 1000 companies across the country,
one-quarter of which are headquartered in Deltacom's footprint.
In addition, the Deltacom assets will enable us to further
reduce our consumer ISP cost structure, which we believe will
result in additional incremental cash flow from that business in
years to come."
Randall E. Curran, Chief
Executive Officer of Deltacom, added, "This transaction is
attractive for our shareholders and represents a compelling
opportunity for our employees, customers and suppliers. To
compete successfully in today's marketplace, size and scale are
very important. We are pleased to become part of a leading
company with enhanced resources."
Added Huff, "This acquisition will position the company to
provide leading edge IP solutions, while allowing us to continue to
generate significant cash and retain the financial flexibility and
capacity to invest in additional strategic opportunities. It also
makes us unique in the industry, as we will be substantially
under-levered and will continue to pay a dividend."
With the acquisition, EarthLink's employee ranks will grow from
approximately 575 people to just under 2,000 people. The company
will continue to be headquartered in Atlanta, GA, and led by Chairman and Chief
Executive Officer Rolla P. Huff,
President and Chief Operating Officer Joseph M. Wetzel, and Chief Financial Officer
Bradley A. Ferguson.
EarthLink Year End 2010 Guidance Update
EarthLink also today updated its financial guidance for the full
year 2010. EarthLink now expects 2010 Adjusted EBITDA of
$207 million to $211 million; free
cash flow (a non-GAAP measure, see definition in "Non-GAAP
Information for EarthLink" below) of $193
million to $201 million, based upon the aforementioned
Adjusted EBITDA guidance combined with $10
million to $14 million in estimated capital expenditures;
and net income of $94 million to $97
million for the full year 2010.
EarthLink ended the second quarter of 2010 with $740 million in cash and marketable securities.
EarthLink's share repurchase program has approximately $146 million available under the current
authorization.
Pro Forma Financials
On a pro forma basis, for the 12-month period ended June 30, 2010, the combined companies would have
generated approximately $1.1 billion
in revenue, $588 million of which
from its combined business services segments. During this time
period, Deltacom generated $89
million in Adjusted EBITDA (a non-GAAP measure, see
definition in "Non-GAAP Information for ITC^DeltaCom" below).
EarthLink expects to achieve annual cost synergies of
approximately $20 million to be fully
realized by the end of the second year after closing, including
these synergies, and excluding one-time costs. EarthLink expects to
achieve positive incremental operating cash flow within 12 months
from the close of this transaction.
Deltacom has outstanding $325
million of 10.5% Senior Secured Notes due 2016 (the
"Notes"). Under the related indenture, the closing of the
merger will trigger a requirement that Deltacom offer to purchase
any or all of the Notes at 101% of their principal amount.
Notes not purchased in connection with the merger will remain
outstanding as obligations of Deltacom and its subsidiaries.
Transaction Terms and Structure
The agreement provides for EarthLink's acquisition of Deltacom
by means of a merger of a newly formed subsidiary with and into
Deltacom, with Deltacom surviving as a wholly-owned subsidiary of
EarthLink. The agreement contains customary representations,
warranties, covenants and closing conditions.
Immediately following the execution of the merger agreement,
funds affiliated with Welsh, Carson, Anderson & Stowe and
Tennenbaum Capital Partners, LLC, who collectively own
approximately 62% of Deltacom's outstanding shares of common stock,
executed a written consent adopting the merger agreement. As
a result, no further stockholder action will be required to adopt
the merger agreement or approve the merger (although the merger
agreement permits the board of directors of Deltacom to exercise
termination rights in certain circumstances as required by its
fiduciary duties). Deltacom will file with the Securities and
Exchange Commission and mail to its stockholders, as promptly as
practicable, an information statement describing the merger
agreement and the merger.
The merger, which the boards of directors of both companies have
unanimously approved, will be completed upon the satisfaction of
several conditions, including receipt of required regulatory
approvals from the Federal Communications Commission and certain
state public utilities commissions and expiration or termination of
the waiting period under the Hart-Scott-Rodino Act. Subject
to the fulfillment of these conditions, the transaction is expected
to close in the fourth quarter of 2010 or the first quarter of
2011.
Greenhill & Co., LLC acted as financial advisor to
EarthLink, and King & Spalding LLP and Troutman Sanders LLP
were its legal counsel. Evercore Partners acted as financial
advisor to ITC^Deltacom, and Paul, Weiss, Rifkind, Wharton &
Garrison LLP was its legal counsel.
Conference Call
EarthLink will host a conference call to discuss the transaction
today at 8:45 a.m. Eastern Time
Those wishing to participate in the call should dial
800-706-0730 (U.S. and Canada) or
706-634-5173 (international) approximately 10 minutes prior to the
start of the call and reference the "EarthLink Conference Call". A
listen-only webcast will be available at
http://ir.earthlink.net/index.cfm. A replay of the call will be
available two hours after the call by dialing 800-642-1687 Passcode
15285501.
About Deltacom
ITC^DeltaCom, Inc. (Deltacom), headquartered in Huntsville, Alabama, provides, through its
operating subsidiaries, integrated telecommunications and
technology services to businesses and other communications
providers in the southeastern United
States. Deltacom has a fiber optic network spanning
approximately 16,400 route miles (12,483 owned or controlled under
IRU agreements), and offers a comprehensive suite of voice and data
communications services, including local, long distance, broadband
data, Internet connectivity, wireless voice and data services, and
customer premises equipment. Deltacom is one of the largest
competitive telecommunications providers in its primary eight-state
region. For more information, visit Deltacom's web site at
www.deltacom.com.
About EarthLink
"EarthLink. We revolve around you™." A leading provider of IP
services to consumers and businesses across the country,
Atlanta-based EarthLink has earned
an award-winning reputation for outstanding customer service and
product innovation. The company's New Edge Networks
subsidiary provides MPLS services to business customers nationwide.
Learn more about EarthLink by calling (800) EARTHLINK or visiting
EarthLink's website at http://www.earthlink.net.
Cautionary Information Regarding Forward-Looking Statements
for EarthLink, Inc.
This press release includes "forward-looking" statements (rather
than historical facts) that are subject to risks and uncertainties
that could cause actual results to differ materially from those
described. Although we believe that the expectations expressed in
these forward-looking statements are reasonable, we cannot promise
that our expectations will turn out to be correct. Our actual
results could be materially different from and worse than our
expectations. We disclaim any obligation to update any
forward-looking statements contained herein, except as may be
required pursuant to applicable law. With respect to
forward-looking statements in this press release, the company seeks
the protections afforded by the Private Securities Litigation
Reform Act of 1995. These risks include, without limitation, the
successful completion of the pending acquisition of ITC^DeltaCom,
including the receipt of required regulatory approvals; the ability
to realize expected synergies, cost savings and growth
opportunities; the possibility that the anticipated benefits from
the acquisition cannot be fully realized or may take longer or
present greater cost to realize than expected; our ability to
successfully integrate the operations of ITC^DeltaCom upon its
acquisition without detracting from our current operations; our
increased exposure to regulatory, general economic and other
conditions that could adversely impact the competitive local
exchange carrier industry; our ability to execute our acquisition
strategy; and other unforeseen difficulties that may occur. These
risks also include (1) that the continued decline of our consumer
access subscribers, combined with the change in mix of our consumer
access subscriber base from narrowband to broadband, will adversely
affect our results of operations; (2) that we will have less
ability in the future to implement cost reductions to offset our
revenue declines, which will adversely affect our results of
operations; (3) that we face significant competition which could
reduce our profitability; (4) that adverse economic conditions may
harm our business; (5) that we may not be able to execute our
business strategy for our Business Services segment, which could
adversely impact our results of operations and cash flows; (6) that
our commercial and alliance arrangements may not be renewed or may
not generate expected benefits, which could adversely affect our
results of operations; (7) that our business is dependent on the
availability of third-party telecommunications service providers;
(8) that we may be unable to retain sufficient qualified personnel,
particularly in light of recent workforce and cost reduction
initiatives and in a recovering economy, and the loss of any of our
key executive officers could adversely affect us; (9) that we may
be unsuccessful in making and integrating acquisitions into our
business, which could result in operating difficulties, losses and
other adverse consequences; (10) that if we do not continue to
innovate and provide products and services that are useful to
subscribers, we may not remain competitive, and our revenues and
operating results could suffer; (11) that our business may suffer
if third parties used for customer service and technical support
and certain billing services are unable to provide these services
or terminate their relationships with us; (12) that interruption or
failure of our network and information systems and other
technologies could impair our ability to provide our services,
which could damage our reputation and harm our operating results;
(13) that government regulations could adversely affect our
business or force us to change our business practices; (14) that
privacy concerns relating to our business could damage our
reputation and deter current and potential users from using our
services; (15) that we may not be able to protect our intellectual
property; (16) that we may be accused of infringing upon the
intellectual property rights of third parties, which is costly to
defend and could limit our ability to use certain technologies in
the future; (17) that if we are unable to successfully defend
against legal actions we could face substantial liabilities; (18)
that our business depends on effective business support systems,
processes and personnel; (19) that as a result of our continuing
review of our business, we may have to undertake further
restructuring plans that would require additional charges,
including incurring facility exit and restructuring charges; (20)
that we may be required to recognize additional impairment charges
on our goodwill and intangible assets, which would adversely affect
our results of operations and financial position; (21) that we may
have exposure to greater than anticipated tax liabilities and the
use of our net operating losses and certain other tax attributes
could be limited in the future; (22) that we may change our cash
return strategy; (23) that our stock price may be volatile; (24)
that our indebtedness could adversely affect our financial health
and limit our ability to react to changes in our industry; and (25)
that provisions of our second restated certificate of
incorporation, amended and restated bylaws and other elements of
our capital structure could limit our share price and delay a
change of management. These risks and uncertainties, as well as
other risks and uncertainties that could cause our actual results
to differ significantly from management's expectations, are not
intended to represent a complete list of all risks and
uncertainties inherent in our business, and should be read in
conjunction with the more detailed cautionary statements and risk
factors included in our Annual Report on Form 10-K for the year
ended December 31, 2009.
Cautionary Note Regarding Forward-Looking Statements for
ITC^DeltaCom, Inc.
Except for the historical and present factual information
contained herein, this release contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.
When used in this release, the words "anticipate," "believe,"
"estimate," "expect," "intend," "plan" and similar expressions as
they relate to ITC^DeltaCom, Inc. or its management are intended to
identify these forward-looking statements. All statements by the
company regarding its expected financial position, revenues,
liquidity, cash flow and other operating results, balance sheet
improvement, business strategy, financing plans, forecasted trends
related to the markets in which it operates, legal proceedings and
similar matters are forward-looking statements. The company's
actual results could be materially different from its expectations
because of various risks. These risks, some of which are discussed
under the caption "Risk Factors" in the company's Annual Report on
Form 10-K for the year ended December 31,
2009, and in the company's subsequent SEC filings, include
the successful completion of the pending merger with EarthLink,
including the receipt of required regulatory approvals and other
unexpected issues that could impact the completion of the merger,
the company's dependence on new product development, rapid
technological and market changes, the company's dependence upon
rights of way and other third-party agreements, debt service and
other cash requirements, liquidity constraints and risks related to
future growth and rapid expansion. Other important risk factors
that could cause actual events or results to differ from those
contained or implied in the forward-looking statements include,
without limitation, customer attrition, delays or difficulties in
deployment and implementation of collocation arrangements and
facilities, appeals of or failures by third parties to comply with
rulings of governmental entities, inability to meet installation
schedules, general economic and business conditions, failure to
maintain underlying service/vendor arrangements, competition,
adverse changes in the regulatory or legislative environment, and
other factors beyond the company's control. ITC^DeltaCom disclaims
any responsibility to update these forward-looking statements.
Additional Information
This communication is being made in respect of the proposed
merger transaction involving ITC^DeltaCom and EarthLink. In
connection with the proposed transaction, ITC^DeltaCom will prepare
the information statement for its stockholders describing the
merger transaction. ITC^DeltaCom and EarthLink will be filing
other documents with the SEC as well. Investors are urged to
read the information statement regarding the proposed transaction
and any other relevant documents carefully in their entirety when
they become available because they will contain important
information about the proposed transaction. You may obtain
copies of all documents filed with the SEC regarding this
transaction, free of charge, at the SEC's website,
http://www.sec.gov. You may also obtain these documents, free of
charge, from EarthLink's website, http://www.earthlink.net, under
the tab "About Us", then under the tab "Investor Relations" and
then under the tab "SEC Filings". You may also obtain these
documents, free of charge, from ITC^DeltaCom's website,
http://www.deltacom.com, under the heading "Investors" and then
under the tab "ITC^DeltaCom SEC Filings".
EARTHLINK, INC.
|
|
|
|
Reconciliation of Guidance
Provided in Non-GAAP Measures (1)
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
Ending
|
|
|
|
|
December 31,
|
|
|
|
|
2010
|
|
Net income
|
|
$94 - $97
|
|
Income tax provision
|
|
61 - 62
|
|
Depreciation
|
|
14
|
|
Amortization of intangible
assets
|
|
4
|
|
Stock-based compensation
expense
|
|
12
|
|
Interest expense and other,
net
|
|
21
|
|
Facility exit and restructuring
costs
|
|
1
|
|
|
Adjusted EBITDA (1)
|
|
$207 - $211
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
|
|
Ending
|
|
|
|
|
December 31,
|
|
|
|
|
2010
|
|
Net income
|
|
$94 - $97
|
|
Income tax provision
|
|
61 - 62
|
|
Depreciation
|
|
14
|
|
Amortization of intangible
assets
|
|
4
|
|
Stock-based compensation
expense
|
|
12
|
|
Interest expense and other,
net
|
|
21
|
|
Facility exit and restructuring
costs
|
|
1
|
|
Purchases of property and
equipment
|
|
(14) - (10)
|
|
|
Free cash flow (1)
|
|
$193 - $201
|
|
|
|
|
|
|
|
|
|
|
|
ITC^DELTACOM,
INC.
|
|
|
|
Reconciliation of Net Loss to
Adjusted EBITDA (2)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
|
|
Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2010
|
|
Net loss
|
|
$ (9,760)
|
|
Depreciation and
amortization
|
|
63,398
|
|
Stock-based compensation
expense
|
|
3,019
|
|
Interest income and expense,
net
|
|
25,548
|
|
Write-off of debt discount and
issuance cost
|
|
7,948
|
|
Other (income) loss
|
|
(820)
|
|
|
Adjusted EBITDA (2)
|
|
$ 89,333
|
|
|
|
|
|
EARTHLINK, INC.
Footnotes to Reconciliation Tables
1. Adjusted EBITDA is defined by EarthLink as net income before
interest expense and other, net, income taxes, depreciation and
amortization, stock-based compensation, gain (loss) on investments,
net, impairment of goodwill and intangible assets, and facility
exit and restructuring costs. Free cash flow is defined as
net income before interest expense and other, net, income taxes,
depreciation and amortization, stock-based compensation, gain
(loss) on investments, net, impairment of goodwill and intangible
assets, and facility exit and restructuring costs, less purchases
cash used for of property and equipment and purchases of subscriber
bases.
Adjusted EBITDA and free cash flow are non-GAAP measures and are
not determined in accordance with U.S. generally accepted
accounting principles. These financial performance measures are not
indicative of cash provided or used by operating activities and may
differ from comparable information provided by other companies, and
they should not be considered in isolation, as an alternative to,
or more meaningful than measures of financial performance
determined in accordance with U.S. generally accepted accounting
principles. These financial performance measures are commonly used
in the industry and are presented because EarthLink believes they
provide relevant and useful information to investors. EarthLink
utilizes these financial performance measures to assess its ability
to meet future capital expenditures and working capital
requirements. EarthLink also uses these financial performance
measures to evaluate the performance of its business, for budget
planning purposes and as factors in its employee compensation
programs.
2. Adjusted EBITDA as defined by ITC^DeltaCom represents net
income (loss) before interest income and expense, net, provision
for income taxes, depreciation and amortization, stock-based
compensation, non-cash loss on extinguishment of debt, write-off of
debt discount and issuance cost, prepayment penalties on debt,
equity commitment fees, restructuring expenses, merger-related
expenses, asset impairment loss and other income or loss. Adjusted
EBITDA is not a financial measurement under accounting principles
generally accepted in the United
States, or "GAAP." ITC^DeltaCom’s management uses Adjusted
EBITDA, together with financial measures prepared in accordance
with GAAP, such as revenue and net loss, to assess its historical
and prospective operating performance.
See "Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Overview—Adjusted EBITDA" in the
ITC^DeltaCom Annual Report on Form 10-K for the 2009 fiscal year
for a discussion of the company's reasons for using Adjusted EBITDA
and for material limitations with respect to the usefulness of this
measurement.
SOURCE EarthLink, Inc.
Copyright t. 1 PR Newswire