Posted 07/2000
CHOICE ONE GETS FINANCING FOR US xchange ACQUISITION
By Ken Branson
Choice One Communications Inc. (www.choiceonecom.com) has agreed to buy US xchange LLC (www.usxchange.com) for $518 million. The deal includes $311 million in cash, $200 million in preferred equity and 7 million shares of Choice One stock. The deal is expected to close by the end of the year.
Choice One officials also say they have obtained $550 million in new financing in the form of $200 million in preferred equity, $200 million in a senior secured credit facility and $150 million in a bridge loan to fund the merger and expand the business plan.
As part of the deal, US xchange bondholders must agree to tender 80 percent of their high-yield debt. All have agreed to do so, according to Choice One officials.
Choice One currently serves small and medium-sized business customers in the northeast. This acquisition will allow Choice One to expand its footprint to the northern Midwest, where US xchange serves 17,000 customers with 60,000 access lines throughout Illinois, Indiana, Michigan and Wisconsin. US xchange's network is linked with optical fiber, which company officials say will be retained by an affiliate of US xchange. As part of the agreement, Choice One will obtain a 20-year indefeasible right of use (IRU) on that fiber from US xchange.
The move is a smart one for both companies, according to Char Haidley, director of consulting services at New Paradigm Resources Group (www.nprg.com), a Chicago-based market research and consulting firm. She says the footprints of Choice One and US xchange do not overlap much, and they serve the same kind of markets.
However, the most important gain for Choice One may be that it instantly acquires hardware it would have had to buy separately and deploy.
"US xchange has a whole bunch of data switches, 13 of them, whereas Choice One has only eight," Haidley says.
Choice One officials say US xchange, a private company, has about $38 million in annual revenues.
