Internap Buys VitalStream
Together, we expect to become a formidable force in the rapidly growing streaming media and content delivery market. Under the terms of the transaction, Internap will issue approximately 11.9 million shares of common stock in respect of outstanding VitalStream common shares, which will represent approximately 26% of the combined companys shares. This is an exchange ratio of 0.5132 Internap shares for every VitalStream share. In addition, Internap will assume VitalStreams currently outstanding stock option plans. Based on the closing price of Internaps stock on October 11, 2006, the transaction is valued at an aggregate purchase price of approximately $217 million.
The acquisition is expected to close by the first quarter of 2007. s acquisition of VitalStream is a business combination that creates a scalable public company with complementary product lines and accelerated growth potential. We believe that this is an exciting value proposition for our customers including unparalleled distribution, network quality and customized solutions, as well as a unique alternative for investors, said Jack Waterman, chairman and chief executive officer of VitalStream. The new Internap will offer turnkey digital media broadcasting solutions for web users of all sizes. By uniting our two organizations, customers will have a complete solution to realize the full on-line potential of their digital assets. The transaction is expected to be slightly dilutive to Internap's 2007 EBITDA per share after considering the impact of expected revenue and cost synergies, but begins to be accretive in 2008 and beyond. The company also expects the impact of the acquisition will increase its organic revenue growth rates. Specifically, the companies expect to capitalize on significant growth opportunities resulting from the combined companies ability to sell Vital Streams large and growing customer base, and Internaps global presence.
The companies also believe there are significant opportunities for operating cost synergies for calendar year 2007 and beyond. The combined company will result in: Internap holding a market leadership position delivering streaming media content Internaps ability to access the high-growth streaming media and on-line advertising segments The strongest, most complete product line in content delivery solutions, content monetization, and on-line advertising Significant new organic growth potential coupled with cross selling opportunities The combined company will have: More than 450 total employees More than 135 quota-carrying salespeople More than 3000 enterprise customers By combining the two companies' product lines, Internap will be able to meet the needs of customers seeking to both deliver rich media content to their users and monetize that content. The combination of VitalStreams content delivery services, content management tools and particular expertise in Adobe (formerly Macromedia) Flash technology, with Internaps high performance route management network, will enable the new organization to easily address the needs of enterprises seeking to deliver large format media files in a streamed environment.
The combined offering will be the strongest and most comprehensive available in the industry today. Internap has long served customers across multiple verticals that have critical needs for high performance network solutions. With the growing deployment and popularity of audio and video over the Internet, the combined company is uniquely positioned to address the complexities of encoding, storing, delivering, managing and monetizing streaming media content to ensure a compelling user experience for its customers. Internap has recently announced network upgrades and continued colocation growth to support these customer requirements and is recognized as the industry leader in performance network services. VitalStream is the solution of choice for over 800 enterprise customers and its development and support capabilities for Adobe Flash and Windows Media customer implementations set it apart in the industry.
By introducing VitalStreams capabilities to Internaps customer base, the potential exists to create a new market leader in the content delivery arena. Internap sees several immediate opportunities for growth: Product cross-sell. Cross-selling products between the respective companies' customer bases Geographic penetration. Leveraging Internaps industry leading performance network services and significant network footprint, in particular, Internap's well established presence in the United States, Europe and Asia, will address a growing opportunity across VitalStreams customer base and offer a global content delivery solution for Internaps customers. The transaction is expected to close in the first calendar quarter of 2007, and is expected to be tax free to shareholders of both companies with respect to the stock consideration the shareholders receive.
Internap Network Services Corp. (Nasdaq: INAP)