NEW YORK-Bulking up for the coming battle of the Titans, Excel Communications Inc. announced it planned to acquire Telco Communications Group Inc. for about $1.2 billion in cash and stock.
With $2 billion in revenues and 6.3 million customers, the combined company would be the fifth-largest long-distance carrier in the nation, the companies said.
“This merger represents a significant strategic move for Excel as we continue to implement our vision of becoming a leading provider of communications products both domestically and internationally,” said Kenny A. Troutt, chairman and chief executive officer of Dallas-based Excel. “In addition to realizing opportunities in its core long-distance business, Excel’s access to the Telco network also will better position the combined company as it continues with its plans to enter the $100 billion local telephone market and ultimately provide a bundled package of local, long-distance and wireless services.”
Through a nationwide network of independent sales representatives, Excel markets under its corporate brand name a variety of telecommunications services, including local and long distance, paging and prepaid calling cards.
Telco, headquartered in Chantilly, Va., is a nationwide, switch-based long-distance carrier marketing its services primarily through two subsidiaries: Dial & Save and Long Distance Wholesale Club. It sells its products and services through its own network of 29 regional offices in 16 states.
“Excel and Telco together penetrate a much larger spectrum of the residential long-distance market,” said Donald A. Burns, chief executive officer of Telco. “In addition, by adding Excel’s off-peak minutes to Telco’s network, the increased volume will result in a lower cost structure that provides the company with important competitive advantages, particularly in the commercial market.”
Following the merger, Telco will maintain its headquarters in Virginia and Burns will continue as its CEO. Troutt will remain as chairman, CEO and president of Excel.
The boards of directors of both companies unanimously have approved the merger agreement. Both companies’ principal shareholders, who collectively hold a majority of the outstanding common stock, have agreed to support the merger. Upon completion of the merger, which the companies hope to close by year- end subject to regulatory approval, Excel shareholders will own approximately 80 percent of the combined company. The transaction will be accounted for as a purchase, and stock received by shareholders of both companies is expected to be tax free.
Lehman Brothers Inc., New York, Excel’s adviser in the planned merger, also has committed to extend a $1 billion line of credit to Excel. Of this, between $500 million and $600 million will be used to fund the cash portion of the Telco purchase and to refinance Telco’s outstanding debt.
Excel anticipates cost savings of $100 million or more during the first full fiscal year after the merger closes, due to the resulting operating synergies and efficiencies.
