Partner Channel: VarTec to Close Lightyear, Excel in 2002

Posted: 11/2001

Partner Channel

VarTec to Close Lightyear, Excel in 2002
By Josh Long

In its second blockbuster deal of the year, Dallas-based VarTec Telecom Inc. has agreed to purchase the North American operations of Excel Communications Inc.

Excel, known for its multilevel marketing strategy and massive network of independent representatives, is among the largest U.S. residential long distance providers.

The purchase price will be based on Excel’s actual year-end financial results and will be paid in the form of a five-year interest-bearing promissory note. The price now is estimated at $250 million.

The combined organization will be the largest privately held telecom company and fifth largest residential long distance provider, says Sherman Henderson, president and CEO of Lightyear Communications Inc., a Louisville, Ky.-based integrated communications provider.

Lightyear announced a merger agreement with VarTec last winter.

Excel CEO Christina Gold says Excel Communications, a subsidiary of Canada’s Bell Canada Enterprises Inc. (BCE) following the acquisition of its parent Teleglobe, posted more than $1 billion in revenue last year. The company provides long distance, paging, wireless and Internet services.

VarTec, a licensed competitive local exchange carrier (CLEC) in Arkansas, Kansas, Missouri, Oklahoma and Texas, provides long-distance service to business and residential customers and wholesale long distance to service providers.

The three companies market to their customers in different ways.

The combination of VarTec and Lightyear will accommodate more than 6 million customers and serve more than 200,000 telephone lines, executives said earlier this year.

Henderson, who was named president of the business services unit for VarTec, says the three companies expect to generate $2.1 billion in 2001.

In a press statement, Mitchell said the merger would double the number of VarTec switches and network capacity.

VarTec owns and operates 13 switches throughout the country.

Excel, which serves 2.3 million residential customers in the United States and some commercial customers through eMeritus Communications the commercial services division of Excel with retail and wholesale operations, has 14 switches.

Lightyear, the owner of a packet-based “SmartStream” network, operates 24 data and voice switches.

Henderson says network executives are in talks concerning possible overlap of territories among the three companies.

The mergers, which are subject to regulatory approvals, are expected to close in February or March, Henderson says.

A holding company will be created to manage the three entities, which comprise 5,200 employees. “Massive layoffs” are not planned as a result of the mergers, says Henderson, cautioning the company “hasn’t gotten to that stage yet.”

VarTec and Lightyear each trimmed its workforce this year in response to market conditions and in preparation for the merger. Other executives say it’s too early to consider staff for the

new company.

They stress one thing, however: The agreements will provide new opportunities for sales partners.

As a result of the agreement, Excel’s estimated 175,000 U.S. marketing partners will have a new suite of products to offer customers, says Gold.

Through a multilevel marketing arrangement, the independent representatives recruit people to sell Excel’s services. Partners receive a residual income each month based on monthly bills through their direct sales and are compensated based on their recruits’ sales, Gold says.

Regarding Excel, Henderson says, “They have a distribution channel we could never put our hands on.”

The most recent merger talks began on a green in Palm Springs, Calif., at the Nortel Networks Palm Springs International Film Festival. Henderson was on the golf course with Jean C. Monty, BCE’s chairman and CEO. Monty asked Henderson if he was interested in putting together a deal, according to Henderson. The men later continued the conversation with Mitchell.

“I don’t think market conditions had one thing to do with why we did it,” says Henderson. “Not one thing to do with it.”

A CEO of the new company has not been named.

As of early this fall, VarTec also was negotiating a deal to acquire Excel’s European operations.