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Earthlink Acquiring One Communications for $370 Million
US ISP EarthLink will be acquiring One Communications (News - Alert) to the tune of $370 million. Analysts and industry insiders are interpreting this purchase as a move towards securing a greater network presence and a move towards positioning itself for the managed IP services market.
Of the purchase price $285 million will be applied to existing One Comm net debt. According to company officials, One Comm stockholders can get the remainder paid in cash or EarthLink shares.
The deal was something of a bailout for One Comm as it was supposedly facing financial difficulties, but the deal had less positive results for Earthlink (News - Alert). The company’s quarterly dividends were impacted about five cents per share.
In the end, Earthlink may be proven to have made an intelligent and strategic decision. After the closing of this deal, it will operate a nationwide IP network with underlying fiber assets in two thirds of the top metro areas in the country.
This combined fiber network will be an impressive one, spanning approximately 28,000 route miles across 27 states, with 923 collocations, 55 IP and circuit-based switches and 68 metro fiber rings.
What do the experts say?
In a note sent to clients, Oppenheimer writes, "We are not surprised to see Earthlink's planned acquisition of One Communications Corp. Similar to the recently-closed ITC Deltacom (News - Alert) acquisition, we believe that this deal comes at a reasonable valuation ($370M; 3.7x TTM EV/EBITDA), and should open up new avenues for growth. The acquired assets should complement the Earthlink Business division (consolidated New Edge/ITCD assets), supporting the provision of comprehensive IP business solutions. The projected $20M in cost synergies also appear reasonable, although we note that the acquired network assets may require incremental capital investments. We expect ELNK's balance sheet strength to provide valuation support; however, the substantial dividend reduction will likely weigh on shares near term. We remain neutral due to lackluster top-line growth and potential integration risks."
Erin Monda recently graduated from W.C.S.U. with a degree in professional writing. She primarily writes about network technologies, including cloud computing, virtualization and network optimization, however she also has a focus on E911 technologies and legislation.
Edited by Erin Monda
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