SOUTHFIELD ? LDMI Telecommunications, which provides telecommunications services for business in Michigan and Ohio, will be purchased by Talk America, which serves the consumer telecom market nationwide, in a stock and cash deal valued at $48 million.
After the deal closes in the third quarter, the combined companies plan a major roll out of Voice Over IP, an Internet delivered voice and data communications package that bypasses traditional telephone lines, executives said in a conference call. The test bed for the new VoIP service is Grand Rapids.
What impact the merger will have on LDMI employment rolls, however, is yet to be determined. Ed Meyercord, Chief Executive Officer and President of Talk America, said any redundancy would be determined after Talk America takes a closer look at the head count later this year.
?In any merger there will be some overlapping functions,?? Meyercord said. ?We have not gone through and identified those. As we close the deal, we?ll have a better idea and have firm plans. But the real value of LDMI is its human capital.?
The combination of LDMI and Talk America will create a financially strong company with no debt, significant cash flow and a platform for continued market expansion. Talk America’s financial flexibility gives it the opportunity to selectively invest in new markets and to grow through future acquisitions.
In 2004, LDMI’s total revenues were $120.7 million and its EBITDA, or pre tax earnings, was $5.9 million. Talk America expects LDMI to generate EBITDA of $8 million in 2005 and $14 million in 2006, including the impact of merger related synergies. The transaction will also bring savings on capital expenditures of at least $4 million through 2006.
LDMI currently has approximately 158,000 voice and data equivalent lines of which 118,000 are in Michigan and 40,000 are in Ohio.
At the closing of the transaction, in exchange for all of the stock of LDMI, Talk America will pay $24 million in cash and issue 1.8 million shares of its common stock, with an estimated value of $16 million based on the closing price as of May 20.
As of April 30, 2005, LDMI had total debt, net of cash, of $8.1 million. The purchase price for LDMI’s equity together with LDMI’s current debt, net of cash, totals $48 million and represents a 3.4 times multiple of LDMI’s expected 2006 EBITDA, including the impact of merger related synergies. The cash portion of the purchase price, as well as the repayment of LDMI’s debt at closing, will be funded out of cash on hand. The deal is expected to close around July 31.
