Paetec, US LEC to merge (Reuters)

NEW YORK (Reuters) - Telecoms services companies US LECCorp. (Nasdaq: - ) and privately-held Paetec Communications onMonday said they had agreed to merge into a new entity with anestimated enterprise value of $1.3 billion.

According to the deal, the two companies will become whollyowned subsidiaries of a new public holding company, New Paetec,that will continue trading under the Nasdaq symbol "CLEC."

Both companies supply communications services to medium andlarge-sized businesses, from telephone systems used over theInternet to network security.

US LEC shareholders will own about one-third of the newholding company, while Paetec investors will own abouttwo-thirds.

US LEC has also entered into an agreement to buy back itsSeries A preferred stock held by private equity firms BainCapital and Thomas H. Lee Partners at a $30 million discount toits accreted value.

Combined pro forma revenue is estimated at nearly $1billion, with adjusted earnings before interest, tax,depreciation and amortization of $187 million.

The two companies expect cost saving of $25 million in thefirst year after closing, expected in the fourth quarter, withan additional $40 million in annual savings beginning in 2008.

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