Earthlink continued on the acquisition trail Monday, announcing plans to acquire phone and Web service provider One Communications for $370 million.
The deal, said Earthlink, builds on its October acquisition of DeltaCom for $516 million and solidly positions Earthlink for additional acquisitions in the Northeast, Midwest, and Mid-Atlantic regions.
After Earthlink retreated from its earlier unsuccessful strategy of building municipal Wi-Fi networks in several U.S. cities, the Atlanta-based Internet service provider turned to acquiring Internet protocol (IP) networks. Earthlink said the One Communications acquisition is definitive and calls for the integration of One Communications into Earthlink's new business division.
With corporate headquarters in Burlington, Mass., One Com serves some 113,000 small and midsized business (SMB) customers in 17 states across the Northeast, Mid-Atlantic, and Upper Midwest regions. Major metropolitan markets of Boston, New York, Philadelphia, Baltimore, and the District of Columbia are included in One Communications' service footprint.
Citing the pending acquisition, Earthlink said it will lower its quarterly dividend by more than two-thirds from 16 cents a share to 5 cents a share. "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," said Earthlink chairman and chief executive officer Rolla Huff in a statement. "We have taken the opportunity to acquire their network assets and customer base at an attractive valuation multiple."
Huff explained that Earthlink's various financial and service assets are expected to add stability to the financial and operating performance of the company.
Earthlink noted that the acquisition will help place its fiber assets in a strong category, spanning some 28,000 route miles across 27 states with 55 IP and circuit-based switches and 68 metro fiber rings. The combined company will have nearly 3,500 employees in the United States.
The $370 million acquisition price will be broken down by $85 million in cash and $285 million in assumed debt. Earthlink said it expects the deal to close in the first half of 2011.