Internet service provider EarthLink (ELNK) announced Friday plans to acquire Southeastern fiber optic network company ITC DeltaCom (ITCD) in a deal valued at $516 million. EarthLink views the purchase as an opportunity to grow its corporate business while reducing the cost of offering consumers Internet service.
EarthLink plans to combine its ISP business with ITC DeltaCom's fiber optic and communications operations to deliver Internet, telecommunications and managed services. The deal, which is expected to close in the fourth quarter, will have DeltaCom operating as a wholly owned subsidiary of EarthLink.
"As the demand for high-quality IP infrastructure continues to rapidly grow, we see a significant opportunity to focus these combined IP networking and managed service capabilities with our strong balance sheet to meet this increasing demand from enterprise level customers, wireless carriers, and multi-location national accounts," said EarthLink CEO Rolla Huff in a statement.
Investors apparently were unenthusiastic about the merger, pushing EarthLink's shares down 3.6% to $8.76 a share in late afternoon trading, while the broader markets were up. That reaction also ran counter to EarthLink's revised year-end figures, in which the company raised the lower end of its guidance range. For the full year, EarthLink now anticipates net income of $94 million to $97 million, compared with the guidance of $91 million to $97 million that it provided when it issued its second quarter results.
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