May 15, 2006 Denver, CO -- Qwest Communications today announced it will acquire privately held OnFiber Communications, an Austin-based provider of custom-built and managed metropolitan Ethernet and WAN solutions.
The agreement calls for a $107-million purchase price, with Qwest having the option up until closing to substitute up to $35 million of Qwest shares for cash. The transaction is anticipated to close in the third quarter.
OnFiber specializes in high-bandwidth, all-fiber solutions serving primarily large business and government clients. The company operates an all-optical network in 23 metropolitan areas that delivers both access and transport services, including Ethernet, SONET, and wavelength-based services.
Qwest currently provides similar solutions to metropolitan areas within its 14-state operating region. According to company representatives, the OnFiber acquisition deepens Qwest's out-of-region metropolitan coverage while reducing third-party access costs. Qwest's nationwide MPLS backbone network extends throughout the United States and carries nearly four billion voice-over-Internet Protocol (VoIP) minutes per month.
"This is a sound, complementary deal for Qwest, OnFiber, and both companies' customers," contends Tom Richards, executive vice president in Qwests' Business Markets Group. "This union gives businesses [a] choice in national providers. OnFiber brings a unique approach to delivering and managing custom fiber networks that has proven to be efficient and cost-effective."
OnFiber expects to post revenues of nearly $60 million in 2006 -- representing year-over-year growth of more than 20%. Last year, the company's average revenue-per-employee reached nearly $450,000, and its average monthly customer revenue, at more than $17,000, was among the highest of competitive telecom providers.
"We expect the Ethernet market will grow upwards of 50% annually; Ethernet has been a high growth product for us in-region, and this increases our participation nationally," adds Richards. "For Qwest, this expands our penetration in key markets throughout the country while reducing last-mile costs. It absolutely fits our criteria for a return-focused acquisition."
Qwest anticipates run-rate synergies of about $25 million annually, most significantly in the elimination of overlapping facilities and the reduction of network access costs. The company also expects the transaction will be accretive to EBITDA and free cash flow starting next year.