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Paetec to buy Cavalier

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2010 11 22

Telecommunications company Paetec Holding Corp. has agreed to buy regional rival Cavalier Telephone Corp. for $460 million in cash, seeking to boost its fiber-optic-network business amid surging broadband use in homes and offices.

Paetec, based in Fairport, N.Y., provides voice, data and Internet services to businesses, hotels, hospitals and other institutions around the U.S. Privately held Cavalier, of Richmond, Va., owns 17,000 miles of fiber network and serves business and residential customers in mid-Atlantic, Midwestern and Southeastern states. The combined entity would have a fiber network of more than 37,000 miles in urban and rural areas.

The deal, which is pending regulatory approval, has been approved by the boards of both companies and is expected to close in four to six months.

"This is a fantastic deal for us because of [Cavalier's] strong presence in the mid-Atlantic and Northeast," where Paetec also has a stronghold, Paetec Chief Executive Arunas Chesonis said in an interview Sunday. "There are great synergies out of this transaction."

The overlap will allow Paetec to enrich the communication services it offers existing customers, said Mr. Chesonis, who will be CEO of the combined company. He added that Paetec, which had $1.6 billion in 2009 revenue, could play the role of a "consolidator," buying up more fiber assets around the country.

The demand for fiber networks is growing at double-digit percentages per year as more people send data-heavy audio and video files over the Internet, according to industry estimates.

Anticipation of this demand has led to some deal making in recent months. Last month, Windstream Corp. bought privately owned fiber operator Kentucky Data Link Inc. for $782 million to upgrade its fiber network. Fibertech Networks LLC, an Eastern U.S. provider, was sold to private-equity firm Court Square Capital Partners for $500 million last month. Several more fiber operators are on the block.

Cavalier's fiber network is one of the country's largest. It owns 17,000 miles of fiber network, which represents over $2 billion of investment. Cavalier acquired companies that had built the network, a spokesman said.

The company, which is owned by Boston-based private-equity firm M/C Venture Partners, also has several government clients, including the Federal Bureau of Investigation and National Gallery of Art.

Deutsche Bank and Bank of America Corp. provided financial advice to Paetec, while Hogan Lovells US LLP and Skadden, Arps, Slate, Meagher & Flom LLP provided legal advice. Paetec has financing commitments from the two banks. Evercore Partners and Edwards Angell Palmer & Dodge LLP advised Cavalier.

Corrections & Amplifications:

Cavalier Telephone owns 17,000 miles of fiber network, which represents over $2 billion of investment. An earlier version of this story incorrectly said Cavalier invested $2 billion to build its fiber network. The story also incorrectly referred to the target as Cavalier Telephone LLC. The correct name is Cavalier Telephone Corp.

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