EXHIBIT 99.1
[McLEODUSA LOGO APPEARS HERE]
McLeodUSA Incorporated
McLeodUSA Technology Park
6400 C Street SW, PO Box 3177
Cedar Rapids, IA 52406-3177
Press and Investor Contact: Bryce E. Nemitz
bnemitz@mcleodusa.com
Phone: (319) 298-7800
FAX: (319) 298-7767
For Immediate Release
Merger Reinforces "Super Regional" CLEC Status
McLeodUSA and Ovation Communications Sign Definitive Agreement
Cedar Rapids, IA and Minneapolis, MN -- January 7, 1999 -- Two leading
Midwestern Competitive Local Exchange Carriers (CLECs) today announced their
intention to merge. McLeodUSA Incorporated (Nasdaq NMS:MCLD) and Ovation
Communications, Inc. have signed a definitive Agreement and Plan of Merger.
Both companies provide telecommunications services to business and residential
customers in the upper Midwest. The combined company will be known as
McLeodUSA Incorporated.
The owners of Ovation Communications will receive approximately 5.1 million
shares of McLeodUSA stock and approximately $141 million in cash for all
Ovation stock. McLeodUSA will also assume $83 million in Ovation debt.
Estimated 1998 revenue for Ovation Communications is $34.6 million with
positive EBITDA of $4.4 million.
Strategic Fit
Clark McLeod, Chairman and CEO of McLeodUSA stated, "The Ovation merger
complements our strategy, dramatically expands our opportunity and accelerates
our execution. Combining these companies provides a new degree of continuity
throughout the region. The McLeodUSA market is expanded by 50 percent, which
should have a positive impact on shareholder value. And most important, the
Ovation team is outstanding, bringing additional depth and breadth to our
organization."
Tim Devine, CEO and President of Ovation Communications, added, "McLeodUSA
has long been a standout in the industry. Their success as a competitive
provider is unprecedented, their style is aggressive and their customer
loyalty is extraordinary. The combined team will dominate the region."
Operational Advantages
Once the transaction is completed, the combined company will be a
facilities-based provider with approximately 412,000 local lines, 5,400
employees, 6,900 route miles of fiber optic network and 11 switches.
Commenting on the merger, Steve Gray, McLeodUSA President and COO stated,
"The Ovation management team has over 150 years of combined CLEC
experience. This experience is specific to interconnection with the Bells,
local number portability, fiber network deployment and on-switch services.
This merger will allow us to accelerate our migration on-switch and our
independence from Bell facilities. And, we believe 1999 new lines sold will
double our 1998 results. Further, it establishes McLeodUSA as the most
prominent, ubiquitous regional CLEC in the country."
Accelerated Growth
Tim Devine of Ovation: "Perhaps the most significant challenge to the growth
of both McLeodUSA and Ovation has been finding committed, experienced
telecommunications professionals in the numbers needed to tackle this
incredible marketplace opportunity. Both companies are committed to employee
growth and development, as well as providing the opportunity for our employees
to participate in Company success through stock ownership."
Most Ovation employees are located in Minneapolis and in several Michigan
cities as a result of the acquisition of Phone Michigan completed in October
1998. Additional employees are in Chicago and Milwaukee.
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
regulatory authorities. The merger does not require approval by McLeodUSA
stockholders.
Agreement Terms and Conditions
. McLeodUSA will purchase all shares of Ovation Communications, Inc.
stock for approximately $141 million in cash and approximately 5.1
million shares of McLeodUSA stock. These shares will represent 7.4
percent of the outstanding shares of McLeodUSA Incorporated.
. The agreement provides for no collars. The owners of more than 87
percent of the Ovation shares have signed an agreement to vote in favor
of the transaction. McLeodUSA will assume the debt of Ovation
Communications of approximately $83 million.
. Mr. James F. Wade of Media/Communications Partners will serve on the
McLeodUSA Board of Directors. Media/Communications Partners is a
venture capital firm that currently owns 78 percent of Ovation
Communications, Inc.
. Media/Communications Partners has agreed to sign a stockholders'
agreement limiting their sale of McLeodUSA stock for 36 months.
Company Descriptions
A publicly traded firm headquartered in Cedar Rapids, Iowa, McLeodUSA is a
provider of integrated telecommunications services to business and residential
customers. Current customers are located in a ten-state area that includes
Colorado, Iowa, Illinois, Indiana, Minnesota, Missouri, North Dakota, South
Dakota, Wisconsin and Wyoming. Telecommunications products include local and
long distance service, Internet access, voice mail, paging, teleconferencing
and calling card services. McLeodUSA Publishing Company is one of the largest
independent publishers of yellow and white page telephone directories in the
country. In the next 12 months, McLeodUSA Publishing will distribute nearly 16
million copies of competitive directories in 20 states reaching 28 million
people.
Ovation Communications is a privately owned, facilities-based CLEC
headquartered in Minneapolis. Ovation was incorporated during the first
quarter of 1997 and began construction of a 67-mile network in Minneapolis in
September 1997. Service was turned up in December of 1997 and over 16,000
lines were sold by October 31, 1998. Ovation completed the acquisition of
Phone Michigan in October 1998, adding 400 route miles of network and nearly
32,000 local access lines sold. Ovation targets business customers in major
Midwestern cities, offering local and long distance service as well as
Integrated Services Digital Network (ISDN) services, voice mail,
teleconferencing, calling card and other enhanced services.
Operating Statistics (as of 9/30/98 for McLeodUSA, 12/31/98 for Ovation)
McLeodUSA Ovation Combined
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Local lines......................................... 366,800 45,577 412,377
Business............................................ 223,200 32,653 255,853
Residential......................................... 143,600 12,924 156,524
Local line customers................................ 179,400 14,650 194,050
Business............................................ 42,500 2,900 45,400
Residential......................................... 136,900 11,750 148,650
Interconnection agreements.......................... 5 7 12
Collocations........................................ 61 36 97
Lines per business customer......................... 5.6 11.3 --
Sales cities........................................ 66 5 71
Cities served....................................... 267 135 377*
Route miles......................................... 6,329 564 6,893
Switches............................................ 7 4 11
Employees........................................... 5,000 384 5,384
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*Some cities are served by both companies
The statements contained in this release are forward-looking statements that
involve risks and uncertainties, including, but not limited to revision of
expansion plans, 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 Company's business, changes in the competitive climate in which the
Company operates and the emergence of future opportunities, all of which could
cause actual results and experiences of McLeodUSA Incorporated to differ
materially from anticipated results and expectations expressed in the forward-
looking statements contained herein. These and other applicable risks are
summarized under the caption "Business-Risk Factors" and elsewhere in the
Company's Annual Report on Form 10-K for its fiscal year ended December 31,
1997, which is filed with the Securities and Exchange Commission.