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SOUTHFIELD, Mich. & NEW HOPE, Pa.--(BUSINESS WIRE)--May 23, 2005--Talk
America (NASDAQ:TALK):
HIGHLIGHTS:
-- Creates leading midwest integrated communications provider
(ICP)
-- Accelerates Talk America's entry into the business market
-- Broad product suite for the residential and business markets
-- Combination expected to generate significant operating
efficiencies
-- VOIP business product rollout in fourth quarter 2005
-- Increased Talk America guidance for 2005
Talk America (NASDAQ:TALK) announced today that it has entered into an
agreement to acquire LDMI Telecommunications, a leading facilities-
based communications provider serving business and residential
customers primarily in Michigan and Ohio. The acquisition of LDMI,
when completed, will provide Talk America with a leadership position
in the small and medium sized commercial marketplace and will expand
its networking footprint.
Ed Meyercord, Chief Executive Officer and President of Talk America,
commented, "LDMI is an outstanding company with an excellent reputation
in our core market. The LDMI team has developed a highly competitive
T-1 product set and built strong distribution and operational
capabilities. LDMI is resource rich with a talented and experienced
team of telecom professionals who will be instrumental in executing
our market expansion strategy. Across the board, this will be a great
fit with our company."
Pat O'Leary, Chief Executive Officer and President of LDMI, said, "we
are delighted to be joining with Talk America, they are executing
their networking plan seamlessly and have tremendous back office
resources. The combination creates a formidable competitor in the
Midwest committed to customer satisfaction."
ESTABLISHED PLAYER IN THE BUSINESS MARKET
LDMI, a privately held company established in 1992, currently provides
service on over 131,000 voice equivalent lines and 27,000 data
equivalent lines, primarily in Michigan and Ohio, supported by
networking infrastructure in 83 end offices. LDMI purchased networking
assets in 2003 and, in anticipation of regulatory changes, transformed
itself into a facilities-based ICP. LDMI has over 2,300 T-1 customers
and delivers a full suite of voice and data offerings, including
specialized services such as virtual private networks, hosted
applications and security services. The company has built a loyal
customer base which includes "Smart-T" customers who receive
integrated voice and data services that are dynamically allocated for
efficient bandwidth utilization. The company also serves larger
customers, such as AC Delco, a division of General Motors, with more
sophisticated service offerings.
STRONG FINANCIAL POSITION AND OPERATING EFFICIENCIES
The combination of LDMI and Talk America will create a financially
strong company with no debt, significant cash flow and a platform for
continued market expansion. Talk America's financial flexibility gives
it the opportunity to selectively invest in new markets and to grow
through future acquisitions.
In 2004, LDMI's total revenues were $120.7 million and its EBITDA was
$5.9 million. Talk America expects LDMI to generate EBITDA of $8
million in 2005 and $14 million in 2006, including the impact of
merger related synergies. The transaction will also bring savings on
capital expenditures of at least $4 million through 2006.
LDMI currently has approximately 158,000 voice and data equivalent
lines of which 118,000 are in Michigan and 40,000 are in
Ohio. Mr. Meyercord continued, "LDMI's traffic is driven primarily by
business customers, and should yield significant networking
efficiencies when combined with our base of primarily residential
customers."
VOIP BUSINESS PRODUCT ROLLOUT IN THE FOURTH QUARTER 2005
It is expected that, when the acquisition is completed, the combined
companies will leverage Talk America's soft switching platform to roll
out VOIP business services in the fourth quarter 2005. Talk America
will utilize its Metaswitch to broaden LDMI's T-1 product suite and
enable the company to expand into new geographic territories and
increase its addressable market.
TRANSACTION EXPECTED TO CLOSE IN THE THIRD QUARTER 2005
At the closing of the transaction, in exchange for all of the stock of
LDMI, Talk America will pay $24 million in cash and issue 1.8 million
shares of its common stock, with an estimated value of $16 million
based on the closing price as of May 20, 2005. As of April 30, 2005,
LDMI had total debt, net of cash, of $8.1 million. The purchase price
for LDMI's equity together with LDMI's current debt, net of cash,
totals $48 million and represents a 3.4x multiple of LDMI's expected
2006 EBITDA, including the impact of merger related synergies. The
cash portion of the purchase price, as well as the repayment of LDMI's
debt at closing, will be funded out of cash on hand.
The LDMI acquisition transaction has been approved by the board of
directors and the stockholders of LDMI and is subject to the receipt
of certain regulatory approvals, which both companies expect to
receive. The shares of common stock will be issued only to the holders
of LDMI's preferred stock and will not be registered under the
Securities Act of 1933. Talk America has agreed to file a registration
statement with the Securities and Exchange Commission as promptly as
reasonably practicable after the closing to permit resales of common
stock by such holders. The companies expect that the transaction will
close in the third quarter 2005.
FINANCIAL GUIDANCE
Talk America has increased its financial and operating guidance for
the full year 2005 to reflect the strength of its core business
operations. Talk America has also provided financial and operating
guidance that includes projected results for LDMI, assuming that its
acquisition of LDMI is completed as of July 31, 2005.
2005
---------------------------------------------
Metrics Talk Previous Talk Revised Talk and LDMI (3)
-------------------------------------- ------------- -----------------
Voice Lines on Network 175k 190k 255k
Data Lines on Network -- 40k 70k
Total Revenue $380-$390 mm $385-$395 mm $430-$440 mm
EBITDA (1) $73-$77 mm $78-$82 mm $83-$87 mm
Capital Expenditures (2) $43-$47 mm $43-$47 mm $48-$52 mm
(1) Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) is defined as operating income (loss)
plus depreciation and amortization.
(2) Includes capitalized software.
(3) Based on July 31, 2005 closing date.
CONFERENCE CALL
Talk America and LDMI management will host a conference call to
discuss the acquisition of LDMI at 8:30 a.m. ET on May 24, 2005. The
call can be accessed by dialing the following: US 800-720-9457,
International, 303-957-1279. A replay of the call will be available
through 7:00 p.m. ET on May 31, 2005 by dialing the following: US
800-633-8284, International 402-977-9140. The reservation number for
the replay is 21248125.
ABOUT TALK AMERICA
Talk America is a leading competitive communications provider that
offers phone services and high speed internet access to both
residential and business customers. Talk America delivers value in the
form of savings, simplicity and quality service to its customers
through its leading edge network and award-winning back office. For
further information, visit us online at: http://www.talkamerica.com.
Please Note: The statements contained herein regarding the
consummation of the acquisition of LDMI, the future results of LDMI
and the effects and results of the acquisition on the business and
results of operations of Talk America should be, and certain other of
the statements contained herein may be considered forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Such
statements are identified by the use of forward-looking words or
phrases, including, but not limited to, "estimates," "expects,"
"expected," "anticipates," "anticipated," "forecast," "guidance," and
"targets". These forward-looking statements are based on our current
expectations. Although we believe that the expectations reflected in
such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been
correct. Forward-looking statements involve risks and uncertaintie s
and our actual results could differ materially from our
expectations. In addition to those factors discussed in the
foregoing, important factors that could cause such actual results to
differ materially include, among others, the non-completion of the
LDMI acquisition or our inability to integrate effectively and as
anticipated the business of LDMI upon the completion of the
acquisition, dependence on the availability and functionality of
local exchange carriers' networks as they relate to the unbundled
network element platform, failure to establish and deploy our own
local network as we plan to do or to operate it in a profitable
manner, increased price competition for long distance and local
services, failure of the marketing of the bundle of local and long
distance services and long distance services under our direct
marketing channels to a smaller marketing footprint, attrition in the
number of end users, failure to manage our collection management
systems and credit control s for customers, interruption in our
network and information systems, failure to provide adequate customer
service, and changes in government policy, regulation and enforcement
and/or adverse judicial or administrative interpretations and rulings
relating to regulations and enforcement, including, but not limited
to, the continued availability of the unbundled network element
platform of the local exchange carriers network and unbundled network
element pricing methodology.
For a discussion of such risks and uncertainties, which could cause
actual results to differ from those contained in the forward-looking
statements, see the discussions contained in our Annual Report on Form
10-K for the year-ended December 31, 2004, filed March 16, 2005, as
amended by our Form 10-K/A filed March 30, 2005, and any subsequent
filings. We undertake no obligation to update our forward-looking
statements.
Contacts
Talk America
Jeff Schwartz, 215-862-1097
jschwartz@talk.com
How to Distribute VoIP Throughout a Home:
http://michigantelephone.mi.org/distribute.html
If you live in Michigan, subscribe to the MI-Telecom group:
http://groups.yahoo.com/group/MI-Telecom/
Jack Decker (jack-yahoogroups@withheld_on_request)