PRIMUS Telecommunications to Acquire Retail Business and Assets of Telegroup
-- Substantially Expands Retail Revenues and Customer Base in Europe -- Expands U.S. Retail Base -- Enhances Distribution Network for Data/Internet Products
MCLEAN, Va.--(BUSINESS WIRE)--May 28, 1999-- PRIMUS Telecommunications Group, Incorporated (Nasdaq: PRTL - news), a facilities-based global telecommunications company, announced today that it has agreed to acquire substantially all of the retail assets and business of Telegroup, Inc. for approximately $72 million in cash and debt securities.
PRIMUS expects that the acquisition will result in approximately $150 million of sustainable retail revenues annually and that the transaction will be accretive to gross margin and EBITDA. The addition of Telegroup's 350,000 retail customers brings PRIMUS's customer base to over 1 million.
PRIMUS will purchase Telegroup's retail customer base and related assets in the United States, Japan and Hong Kong, and the stock of Telegroup's European subsidiaries whose operations are exclusively retail.
PRIMUS will acquire substantially all of Telegroup's global network, including switches in New York, London, Germany, France, The Netherlands, Switzerland, Italy, Tokyo and Hong Kong, calling card platforms in the U.S. and Europe, Telegroup's Web-based order-entry and provisioning systems for agents, and global network management center.
The sale was authorized by the United States Bankruptcy Court for the District of New Jersey, which has had jurisdiction over the Telegroup bankruptcy proceeding since it filed for protection under Chapter 11 of the U.S.
Bankruptcy Code earlier this year.
The sale, which is subject to review under the Hart-Scott-Rodino procedures, as well as certain state and federal regulatory proceedings, will be made free and clear of liens and encumbrances, except those executory contracts which PRIMUS elects to assume. The purchase price is subject to adjustments based on a review by PRIMUS's auditors of Telegroup's revenue and the net working capital of the purchased European subsidiaries.
PRIMUS and Telegroup expect within the next several weeks to sign a definitive agreement with an effective date as of June 1, 1999. PRIMUS has the right to pay the purchase price all in cash or in equal amounts of cash and notes.
''The acquisition of Telegroup's retail business dramatically expands PRIMUS's retail customer and revenue base and accelerates our entry into key markets -- particularly in Europe,'' said K. Paul Singh, Chairman and Chief Executive Officer of PRIMUS. ''Through this transaction, we will acquire additional scale for our operations in the United Kingdom and Germany and, with the purchase of Telegroup's switches and other network assets, we are now able in one quick step to build our network footprint throughout Europe.''
''We project that the sustainable retail revenues from this transaction will approximate $150 million per year, half of which are from Europe,'' commented Neil Hazard, Executive Vice President and Chief Financial Officer of PRIMUS.
''In evaluating this opportunity, we were very impressed by the ability of Telegroup's new management team, which was appointed after the bankruptcy filing, to maintain the retail business under adverse circumstances,'' Singh stated. ''This also reflects the loyalty of Telegroup's highly productive agent network.''
''We expect retail customer and agent retention and revenue growth to continue because PRIMUS's more extensive global network and expanded product portfolio, including Internet and data products, will provide a lower cost platform and enhanced services. For example, PRIMUS has just announced the acquisition of an Internet Service Provider in Germany. We, and our agents, are excited by the opportunities this presents for cross-selling and bundling Internet access, IP Voice and IP Fax products to our expanded list of voice customers.''
''In many respects, PRIMUS was ideally situated to take advantage of this opportunity,'' Singh continued. ''In certain markets -- such as the U.S., U.K., Germany and Japan -- PRIMUS has the network and in-country management teams to absorb readily the new retail business base. In other markets, particularly in Continental Europe, Telegroup had the network assets and retail customer base that gives PRIMUS immediate presence in markets we had targeted.''
''Strategically, this acquisition accelerates PRIMUS's ability to meet a number of key financial objectives,'' Singh concluded. ''Telegroup's sustainable European revenues, combined with PRIMUS's rapidly expanding business, should generate a revenue run rate in Europe of over $225 million per year by the end of 1999. This acquisition also accelerates PRIMUS's ability to meet its $1 billion run rate revenue target which had previously been projected for the fourth quarter in 2000. Finally, the acquisition primarily due to its exclusively retail focus - will be accretive to PRIMUS's existing gross margin and EBITDA.''
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