One Communications Finds A Willing Buyer In EarthLink


EarthLink on Monday confirmed a definitive agreement to acquire competitive local exchange carrier One Communications Corp.

The deal is for $370 million, including the payment of $285 million of One Comm debt, although One Comm shareholders will still be liable for any costs related to One Comm's pending litigation with Verizon New York.

Acquiring One Comm will bring EarthLink a sizable IP network footprint in the Northeast, Midwest and Mid-Atlantic United States. One Comm, based in Burlington, Mass., and with 1,500 employees, serves roughly 113,000 small and mid-sized business customers, and the company boasts 629 collocations and 11,700 miles of fiber.

EarthLink will bring One Comm into its EarthLink Business division, which also includes assets from New Edge Networks, ITC Deltacom and the former EarthLink Business Solutions. Adding One will bring its overall fiber holdings to 28,000 miles across 27 states, 923 collocations, 55 IP and circuit-based switches and 68 metro fiber rings. One Comm's employees bring EarthLink's total employee base to 3,500 worldwide.

"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.," said Rolla P. Huff, EarthLink chairman and CEO, in a statement. "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."

One Comm has been struggling to pay debts in recent months, and earlier this year sold its West Virginia-based fiber network assets to nTelos, following a downgrade by Standard & Poor's based on debt concerns.

The CLEC put itself up for sale in September. In the statement, Huff acknowledged that One Comm is a risky investment. EarthLink will lower its quarterly dividend by 69 percent -- from 16 cents per share to 5 cents per shars -- due to the acquisition.

"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," Huff said. "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."

The deal is expected to close in the first half of 2011, according to EarthLink. Paetec was also said to have bid for One Comm's assets.

The One Comm buy closely follows EarthLink's $516 million acquisition of ITC Deltacom (2010 VAR500 rank No. 120). Both deals are the latest instances of a particularly busy year in M&A events among telecom service providers.