[MCLEODUSA LOGO APPEARS HERE]
MERGER CREATES FIRST "SUPER REGIONAL" CLEC
MCLEODUSA AND CONSOLIDATED COMMUNICATIONS SIGN
DEFINITIVE AGREEMENT
Cedar Rapids, IA and Mattoon, IL - June 16, 1997 - McLeodUSA Incorporated
(Nasdaq NMS:MCLD), one of the nation's fastest growing Competitive Local
Exchange Carriers (CLECs) and Consolidated Communications Inc. (CCI), a
diversified growth-oriented telecommunications company, have signed a definitive
Agreement and Plan of Merger. Both companies currently focus on providing
integrated telecommunications services to business and residential customers in
the upper Midwest. The combined company will be known as McLeodUSA Incorporated.
The transaction, valued at approximately $420 million, was unanimously approved
by the Board of Directors of each company. The owners of CCI will receive 8.49
million shares of McLeodUSA stock and $155 million in cash for all of the stock
of CCI. Based on the annualized results of the quarter ended March 31, 1997, the
merged company would have revenues of approximately $400 million and positive
EBITDA of $6 million.
STRATEGIC FIT: "SUPER REGIONAL"
Clark McLeod, Chairman and CEO of McLeodUSA stated, "The combined company
creates a facilities-oriented telecommunications provider with approximately
200,000 local lines, 4,000 employees, 3,700 route miles of fiber optics network
and 6 switches, focused in a 14-state region, and which also publishes 12
million competitive phone directories a year. When you look at the strategy,
people, products and geography, it's easy to see why we believe these two
companies create a truly powerful Midwestern presence. This certainly seems to
justify a new category: Super Regional."
Dick Lumpkin, Chairman and CEO of Consolidated Communications, added, "The
McLeodUSA story and the CCI story are remarkably complementary. When Clark
presented the McLeodUSA strategy, it was as if he were presenting our business
plan. And the McLeodUSA commitment to quality service to customers, employees
and communities matches closely with ours."
Clark McLeod: "The strategy is unchanged, but our execution will be greatly
accelerated by combining our strong teams. Our strategy is to first build market
share, which we can do faster through our increased sales and marketing
strength. Our second step is to build network. McLeodUSA has over 2,800 route
miles of fiber optic network; CCI adds another 900 route miles to that total.
Third, we intend to migrate customers to our own network and switches. This
strategy is already being executed by CCI, with over 15,000 competitive access
lines, 3 local switching centers and 2 long distance switching centers."
PEOPLE ENABLE ACCELERATED GROWTH
Bob Currey, President of CCI: "Combining our 1,600 employees with the 2,500
employees of McLeodUSA provides us with a workforce of well over 4,000
employees--employees who are seasoned and knowledgeable about the industry and
the enormous opportunities we are pursuing. We are looking forward to joining
forces with the team at McLeodUSA. Together we possess significant talent, all
focused on our Midwest region, and energized by the large opportunity created by
the opening of the local markets to competition."
Clark McLeod added, "The primary employment centers will continue to be Cedar
Rapids, Iowa; Mattoon, Charleston and Effingham, Illinois; and St. Louis,
Missouri. Our merger plan anticipates growing employment in all of these
cities."
EXECUTIVE MANAGEMENT TEAM
The combined company's executive management team will include:
Clark McLeod, Chairman and CEO of McLeodUSA Incorporated,
Dick Lumpkin, Vice Chairman of McLeodUSA Incorporated,
Steve Gray, President and COO of McLeodUSA Incorporated,
Bob Currey, President of McLeodUSA Telecommunications Services,
Art Christoffersen, President of McLeodUSA Publishing Company, and
Blake O. Fisher, Jr., Executive Vice President and CFO of McLeodUSA
Incorporated.
GROWTH OPPORTUNITIES
Steve Gray, President and COO of McLeodUSA: "The Currey/Lumpkin team came
together in the early 90's to grow the competitive portion of their business.
That segment, which now contributes 75 percent of CCI's total revenue, has grown
at a rate of nearly 30 percent annually for the last five years. CCI is growth
oriented, competitive and experienced. Our combined success in the three
Illinois cities where we both provide competitive services will exceed 20
percent market share of the total business lines.
Gray continued, "Our strategy to build market share and network is unparalleled
and unchanged. We believe we have created a strong financial platform to support
continued, aggressive growth. We also believe this merger adds market and
revenue opportunity of $6 billion in new addressable markets, and our combined
directory distribution expands our brand coverage by 35 percent. Moving forward,
this combination creates the Super Regional CLEC in the Midwest."
ANTICIPATED CLOSING DATE
The parties expect to complete the merger within a few months. Consummation of
the merger is subject to Hart-Scott-Rodino clearance and approval of the Federal
Communications Commission and various state regulatory authorities. The merger
does not require approval by McLeodUSA stockholders because of the number of
shares involved in the transaction.
###
AGREEMENT TERMS AND CONDITIONS
McLeodUSA will purchase all shares of Consolidated Communications Inc. preferred
and common stock for $155 million in cash and 8.49 million shares of McLeodUSA
stock. These shares will represent 13.9 percent of the outstanding shares of
McLeodUSA Incorporated. The agreement provides for no collars, and CCI
shareholders have signed an irrevocable proxy. McLeodUSA will assume the debt of
CCI, which includes long-term debt of approximately $60 million. The McLeodUSA
strategy of stock ownership by employees is reflected in this agreement by
making available up to 1.5 million shares of McLeodUSA stock in the form of
stock options to CCI employees. The current owners of CCI have agreed to a key
investor agreement with IES Industries, Inc., MidAmerican Energy Company, and
Clark and Mary McLeod. Under the terms of this agreement, these parties have
agreed to elect each other's representative to the Board of Directors of
McLeodUSA and to restrict their sale of McLeodUSA stock for 12 months. Mr.
Lumpkin and Mr. Currey will serve on the McLeodUSA Board of Directors. The
merger will be accounted for as a purchase with a substantial portion of the
purchase price expected to be allocated to intangible assets including goodwill.
COMPANY DESCRIPTIONS
McLeodUSA is a provider of integrated telecommunications services to business
and residential customers. The company's telecommunications customers are
located primarily in Iowa, Illinois, Minnesota and Wisconsin. The primary units
of McLeodUSA Incorporated include: McLeodUSA Telecommunications Services, Inc.,
a competitive local exchange carrier (CLEC) providing telecom products and
services to 34,000 business and residential customers. McLeodUSA Publishing
Company will print and distribute more than ten million white and yellow page
directories in 19 states over the next 12 months. McLeodUSA Network Services,
Inc. constructed over 2,000 route miles of fiber optic network in 1996 and plans
to continue that pace for the next several years. McLeodUSA Intelligent
Technologies & Systems: an internal service function providing systems, software
and support for managing business operations and customer billing records.
McLeodUSA also has subsidiaries dedicated to telemarketing services and
non-profit fundraising; acquisition and leasing of towers to support wireless
services; and maintenance services for the Iowa Communications Network.
Consolidated Communications Inc. is a diversified telecommunications holding
company with employees located primarily in Illinois, Indiana, Missouri,
Wisconsin and Texas. The subsidiaries of this privately held company include:
Consolidated Communications Telecom Services, Inc. (CCTS): a competitive local
exchange carrier (CLEC) providing telecom products and services to business and
residential customers including worldwide long distance and private line
service, Internet access, paging and cellular services, business systems and
dedicated Internet service and connectivity. Consolidated Communications
Directories, Inc. (CCD): a print and electronic publisher of white and yellow
page telephone directories in 39 states and the U.S. Virgin Islands. Illinois
Consolidated Telephone Company (ICTC): the 24th largest independent local
exchange carrier (ILEC), founded in 1894, providing local telephone service to
90,000 customers in a 3,000 square mile area of rural Central Illinois.
Consolidated Communications Systems & Services Inc. (CCSS): a systems and
billing entity providing systems and services for the total management
of telecommunications products and services, from installation to end-user
billing. Additional subsidiaries provide operator services to regional long
distance companies; full-service telemarketing agency services; pay phone
services and phone services to prisons.
OPERATING STATISTICS (AS OF 5/31/97)
MCLEODUSA CCI COMBINED
--------- ------- --------
LOCAL LINES 95,000 105,000 200,000
BUSINESS 74,000 36,000 110,000
RESIDENTIAL 21,000 69,000 90,000
LOCAL LINE CUSTOMERS 34,000 73,000 107,000
BUSINESS 15,000 7,000 22,000
RESIDENTIAL 19,000 66,000 85,000
LINE PER BUSINESS CUSTOMER 5 5 5
SALES CITIES 53 9 56*
CITIES SERVED 143 43 182*
ROUTE MILES 2,800 900 3,700
LOCAL SWITCHES LEASED 260 12 272
LOCAL SWITCHES OWNED 1 3 4
LONG DISTANCE SWITCHES -- 2 2
DIRECTORIES (MILLIONS) 9 3 12
EMPLOYEES 2,500 1,600 4,100
* SOME CITIES ARE SERVED BY BOTH COMPANIES.
CONSOLIDATED COMMUNICATIONS INC. OPERATIONS SUMMARY (UNAUDITED)(1)(000'S)
ANNUAL FIRST QUARTER ENDED 3/31/97
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1996 1997 1996
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REVENUES:
TELECOMMUNICATIONS $186,082 $ 47,069 $ 44,126
DIRECTORY 44,793 12,967 11,091
OTHER 19,186 4,905 2,722
TOTAL 250,061 64,941 57,939
OPERATING EXPENSES 226,010 59,931 52,210
OPERATING INCOME 24,051 5,010 5,729
OTHER:
INTEREST EXPENSE (4,689) (827) (1,229)
OTHER INCOME 4,590 502 444
PRETAX INCOME 23,952 4,685 4,944
INCOME TAXES 8,862 1,835 2,049
NET INCOME $ 15,090 $ 2,850 $ 2,895
EBITDA(2) $ 46,300 $ 11,050 $ 10,650
(1) The above operations summary represents financial information derived from
the internal records of Consolidated Communications, Inc. ("CCI") for the twelve
months ended December 31, 1996 and the three months ended March 31, 1997 and
1996, respectively. These results are not necessarily indicative of the
operating results that would have been achieved by CCI had the merger of CCI and
McLeodUSA been in effect on the dates indicated, nor do these results reflect
any effect of purchase accounting entries that will
be made as a result of the merger, nor are these results necessarily indicative
of future operating results. The above classifications are also subject to
change as the future CCI results are consolidated with McLeodUSA results.
(2) EBITDA represents operating income before depreciation and amortization.