Exhibit 99.1
[Company Logo] [Splitrock Logo]
McLeodUSA Incorporated Splitrock Services, Inc.
McLeodUSA Technology Park 9012 New Trails Drive
6400 C Street SW, PO Box 3177 The Woodlands, TX 77381
Cedar Rapids, IA 52406-3177
Press & Investor Contact: Bryce Nemitz Contact: Investor Relations
bnemitz@mcleodusa.com ir@splitrock.net
Phone: (319) 790-7800 Phone: (281) 465-1248
FAX: (319) 790-7767 FAX: (281) 419-0860
McLeodUSA To Acquire Splitrock
In $2.1 Billion Stock Transaction
Roy A. Wilkens to join McLeodUSA and Head Data Operations
Cedar Rapids, IA and Houston, TX, January 7, 2000 - McLeodUSA Incorporated
(Nasdaq: MCLD), a leading facilities-based Integrated Communications Provider
(ICP) in Midwest and Rocky Mountain states, and Splitrock Services Inc. (Nasdaq:
SPLT), a facilities-based provider of advanced data services, today announced
they have signed a definitive merger agreement.
Splitrock operates a differentiated, nationwide data network with a broadband
access platform of asynchronous transfer mode (ATM) switches in over 325 points
of presence (POPs) serving 800 cities in all 50 states and reaching 90 percent
of the U.S. population. The network currently carries over 2 billion minutes per
month of Internet traffic, and is designed to carry voice, data and video
traffic over a single network.
Roy A. Wilkens will join McLeodUSA as the head of its Data Services operations
with Splitrock as the core of the newly created group. Wilkens has extensive
experience in the competitive telecommunications segment, most notably during
his tenure at WilTel where he was Founder and CEO of WilTel Network Services
from 1985 to 1997 as WilTel constructed and operated the first nationwide
broadband fiber optic network.
The Splitrock acquisition will allow McLeodUSA to offer data services including
Internet access services to customers in its existing 21-state addressable
market over the newly acquired network platform, enabling enhanced data margins
and improved control over the quality of its data services.
McLeodUSA President and COO Stephen C. Gray stated, "With this transaction, we
have acquired the data and network expertise to accelerate our delivery of
comprehensive data products by 18 to 36 months, while reducing our capital
expenditure for network construction. Moreover, we will be able to begin
procuring services on the Splitrock network immediately - even before the
transaction is finalized."
Splitrock Services has a 20-year irrevocable right of use (IRU) option for up to
16 fibers in the 16,000-mile, partially completed Level 3 network. All segments
of this network are scheduled to be turned over by first quarter 2001. Once
complete, McLeodUSA expects to have not only one of the most pervasive -- but
also one of the most robust -- ATM networks in the country. While McLeodUSA will
continue to focus on its targeted 21-state region for competitive local exchange
services, this transaction affords the opportunity to offer out-of-region
services on an on-net basis, as well as providing data services on a nationwide
basis. The overall addressable ten-year market opportunity for McLeodUSA is
projected to triple to $360 billion.
Terms of the Agreement
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Approved by the Boards of Directors of both companies, the terms of the
all-stock transaction include:
|X| Splitrock shareholders will receive 0.5347 of a share of newly issued
McLeodUSA Class A common stock for each Splitrock share.
|X| Based on the average closing price for the last five trading days of
McLeodUSA shares, the transaction is valued at $30.50 per Splitrock
share. Including assumed Splitrock debt, the transaction is valued at
approximately $2.1 billion.
|X| Upon closing, Splitrock stockholders will own approximately 12.6
percent of McLeodUSA on a fully diluted basis.
|X| Splitrock executives including Chairman and Chief Technology Officer
Kwok L. Li, and President and Chief Executive Officer
William R. Wilson, who together with their affiliates own in excess of
50 percent of Splitrock shares, have agreed to vote their shares in
favor of the transaction and have given an option to McLeodUSA to
acquire their shares.
|X| Accounted for as a purchase, the transaction is expected to be a
tax-free stock-for-stock exchange to Splitrock shareholders.
|X| No cap or collar provisions apply.
|X| A break-up fee of approximately $68 million will apply under certain
circumstances.
|X| Expected to close in the second quarter of 2000, the transaction is
subject to Splitrock shareholder and bondholder approval, McLeodUSA
shareholder approval, antitrust clearance and customary closing
conditions.
|X| McLeodUSA has agreed to facilitate or support $115 million of
financing for Splitrock and to contract for $105 million of
Splitrock services.
|X| Salomon Smith Barney is serving as financial advisor to McLeodUSA and
Credit Suisse First Boston is serving as financial advisor to
Splitrock.
Splitrock Success
- -----------------
Kwok Li and Bill Wilson co-founded Splitrock in March 1997 and began operations
in September of that year. Splitrock began trading on Nasdaq in August 1999.
Splitrock's trademarked architecture known as "ATM-to-the-Edge" is capable of
delivering all products to all 800 cities - large and small. By offering a broad
range of on-net data-related services to its carrier, ISP and end user customer
base, Splitrock has expanded rapidly, with revenue increasing 32 percent from
second quarter to third quarter 1999. Splitrock reported annualized third
quarter revenues of $95 million and annualized EBITDA loss of $48 million.
Chairman and CTO Li commented, "We believe we have built one of the most
advanced networks in the country, capable of delivering a full range of data
products. Now as part of McLeodUSA, this asset and our great team of more than
400 professionals can realize the dream behind the technology."
Splitrock President and CEO Wilson added, "Our team has focused on building a
great network. The combined company will not only step up new customer
acquisitions, but leverage the many strong relationships McLeodUSA and Roy
Wilkens have built throughout our industry."
New Leadership Structure; Splitrock Name Retained
- -------------------------------------------------
McLeodUSA Chairman and CEO Clark McLeod stated, "In order to maximize the
opportunity, we have created two operational units to delineate responsibility
and sharpen our focus. I will concentrate on strategic and external relations.
|X| Steve Gray has been promoted to President and CEO of Local Services
operations, focusing on our 21-state CLEC region; and
|X| Roy Wilkens will be President and CEO of Data Services operations,
functioning under the Splitrock name and addressing the national data
market."
Synergies Created
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McLeod: "This acquisition is an important step in our long-term growth strategy,
and a unique, compelling opportunity to leverage the network and people assets
of Splitrock."
Gray: "The strategy of our 21-state regional Local Services
operation is unchanged. We are continuing to build market share, establishing a
significant number of colocations throughout our region, and moving our traffic
to on-net/on-switch service. The new availability of advanced data services will
allow us to grow faster and deeper as we penetrate our identified region with
integrated services.
Wilkens: "The new Data Services operation will have two priorities: to provide a
full range of data products to McLeodUSA's local service branches across the
current 21-state footprint; and to be the best provider of a full range of data
products to other competitive local exchange carriers (CLECs), Internet service
providers (ISPs) and large multi-state business customers. I am confident our
new Data Services operation can generate significant long-term growth for
McLeodUSA."
The combined company will have an advanced fiber optic network
spanning 26,000 miles, 27 voice switches, 616,000 local lines, and ATM switches
at all 350 installed points-of-presence across the country.
About Roy A. Wilkens
- --------------------
Founder / CEO of WilTel from 1985-1997:
|X| Completed first transcontinental fiber build
|X| Largest and most respected wholesaler
|X| Premier data company in the United States; first nationwide frame relay
service
|X| Acquired by WorldCom in 1995; served as CEO of WilTel and Vice
Chairman of WorldCom from 1995-1997
Appointments include:
|X| National Security Telecommunications Advisory Council for President
Bush and President Clinton
|X| Past chairman of CompTel
About McLeodUSA
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McLeodUSA is a provider of integrated communications services to business and
residential customers in 12 Midwest and Rocky Mountain states; 9 additional
expansion states will be added. McLeodUSA is a facilities-oriented
communications provider with 27 switches, 9,400 route miles of
fiber optics network, 616,400 local lines, and 7,800 employees. In the next
12 months, its publishing subsidiaries plan to distribute nearly 24 million
copies of competitive directories in 22 states, expected to reach nearly 40
million people.
About Splitrock
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Headquartered near Houston, Texas, Splitrock owns and operates a nationwide
broadband access platform that places ATM switches in hundreds of points of
presence (POPs) providing ubiquitous coverage of US businesses and households.
Splitrock's "carry anything, anywhere" business strategy is implemented on this
"ATM-to-the-Edge/TM/" access platform, which integrates data, video and voice
traffic on one platform. Because of the unified nature of the network platform,
Splitrock offers the same level and quality of service nationwide. Splitrock's
products and services include dial and dedicated Internet access, VPN and
Virtual Internet Service (VIS) to corporate end users, ISPs, and other
telecommunications carriers.
# # #
Some of the statements contained in this press release discuss future
expectations, contain projections of results of operations or financial
condition or state other forward-looking information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The "forward-looking" information is based on various factors and
was derived using numerous assumptions. In some cases, you can identify these
so-called forward-looking statements by words like "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements only reflect the predictions of
McLeodUSA. Actual events or results may differ substantially. Important factors
that could cause actual results of McLeodUSA to be materially different from the
forward-looking statements include availability of financing and regulatory
approvals, the number of potential customers in a target market, the existence
of strategic alliances or relationships, technological, regulatory or other
developments in the industry, changes in the competitive climate in which
McLeodUSA operates and the emergence of future opportunities. These and other
applicable risks are summarized under the caption "Risk Factors" in the
McLeodUSA Annual Report on Form 10-K for the fiscal year ended December 31,
1998, which is filed with the Securities and Exchange Commission.