Optical/IP Networks

EarthLink Buys New Edge

Ambitious U.S. ISP EarthLink Inc. (Nasdaq: ELNK) is splashing $144 million to buy national VPN service provider New Edge Networks Inc. in an effort to win business from the U.S.'s 1.8 million small and medium-sized businesses.

Earthlink is paying $114.3 million in cash and 2.6 million shares for New Edge, which has 345 staff members and has anticipated its 2005 revenues to be $120 million. The deal is expected to close in the first quarter of 2006.

Earthlink's stock ended Monday at $11.65, valuing the ISP at $1.5 billion. The share price dipped slightly, by 6 cents, to $11.59 in pre-market trading.

Earthlink has more than 1.5 million broadband customers, 3.6 million dial-up Internet access customers, and more than 130,000 Web hosting customers. In its most recent quarter, to September 30, the company recorded net income of $36.4 million from revenues of $317 million.

It recently launched a VOIP service similar to that of Vonage Holdings Corp., and was chosen by the cities of Philadelphia and Anaheim to install citywide WLAN networks. (See Earthlink Joins VOIP Parade, The Philadelphia Experiment, and EarthLink Unwires Anaheim.)

New Edge will add a nationwide network of switches and routers that help it provide a range of services to businesses, including DSL access, T1 lines, Ethernet services, Frame Relay and ATM services, and IP VPNs. It recorded revenues of $115.5 million, and earnings before interest, tax, depreciation, and amortization (EBITDA) of $11 million in 2004. (See New Edge Reports Record Sales .)

During its six-year life, New Edge has raised $350 million in funding from investors such as Goldman Sachs & Co., Accel Partners, Crosspoint Venture Partners, and Greylock Partners.

— Ray Le Maistre, International News Editor, Light Reading

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