IP Democracy: Paetec Buys McLeod in Bid to Shake Up Giants

Competitive local exchange carrier Paetec is poised to given the two dominant U.S. telcos, AT&T and Verizon, a run for their money. The Fairport, NY-based business-oriented telecom provider announced this morning it is buying former CLEC superstar McLeod USA for $492 million in a stock-for-stock transaction. With Paetec's assumption of $65 million of McLeod's debt, the deal is worth $557 million.

The combined company will have 3.4 million access lines and a presence in 82 of the top 100 MSAs, with annual revenue of $1.6 billion and cash flow of $263 million. Although tiny when compared to rivals Verizon ($91 billion in annual revenue) or AT&T ($117 billion in annual revenue), Paetec is gunning for the most lucrative part of those giants' business -- the mid-sized and large business segment. And the company will have a nationwide footprint that covers 13,000+ intercity route miles and 4,000 metro fiber route miles.

Cedar Rapid, IA-based McLeod USA was one of the leading lights of the late-90s CLEC boom that gave rise to frenzied speculation in the telecom sector, only to see its fortunes fall with the telecom bust. The company ultimately filed for Chapter 11 bankruptcy, emerging in January 2006 as a privately held entity.

Paetec (which is an acroynm of the founders' family members' names) also arose during the telecom boom, but survived the shakeout and now provides service across 24 states. The 2,300-employee company, founded by CEO Arunas A. Chesonis and other executives, places a lot of value on its customer service and corporate culture, which it widely proclaims as "caring." Chesonis, who will also serve in the top slot of the combined company, keeps every employee's photo, name and title in his office so that he can memorize them.

Posted by Cynthia Brumfield on September 17, 2007 7:38 AM to IP Democracy