Under terms of the agreement, Qwest is to purchase Allegiance assets out of bankruptcy for $300m in cash. Qwest will also issue about $90m of convertible debt. Allegiance has about 2,900 employees nationwide.
The acquisition must be approved by the US Bankruptcy Court in New York, where Allegiance filed for Chapter 11 protection from creditors in May. The company filed a motion with the court to begin an auction in which Qwest will be designated the primary bidder. However, other interested parties will have an opportunity to make bids before a February 13, 2004 deadline.
The deal that will give the Denver company an entry into the Texas market, and help with its roll-out of its planned Voice over IP service for consumers. The acquisition will also increase Qwest’s Points of Presence by nearly 700, and give Qwest assets in 31 new metro markets.
Allegiance Telecom started in 1997 and expanded rapidly. It decided to build its own network rather than lease portions of the dominant phone company, a rare feat considering the large amount of capital needed (a staggering $3bn). Allegiance was able to expand to 36 major markets. Currently, the company has about 100,000 customers, which translates to about 1.5 million lines. Its base is made up mostly of small- to medium-sized businesses.
Through its aggressive expansion, the company amassed more than $1bn in debt. Allegiance filed for bankruptcy and was delisted from the Nasdaq market in May 2003. For the third quarter, Allegiance reported a loss of $63.1m on revenue of $188.2m.
The acquisition is a bold move for Qwest, and could boost its financial standing in the markets, which has suffered lately. The company dodged Chapter 11 a year ago and is facing declining revenue, as well as $20bn in debt.
This article is based on material originally produced by ComputerWire.
