M2 Telecommunications Acquires Primus Australia for A$192m 4.8*CY11 EBITDA

16th April 2012. – Primus Telecommunications Group (NYSE: PTGI), a global facilities-based integrated provider of advanced telecommunications products and services, announced today that it has entered into a definitive agreement to sell its Australian operations to ASX listed M2 Telecommunications Group (ASX: MTU) for approximately $A192.4m, or approximately $US 200m, on a debt-free basis and including A$10.6 million of restricted cash to secure bank guarantees for property lease and supplier security requirements.

Primus’ Australian operations delivered revenues of A$280.2m in CY2011 and an EBITDA of A$39.9m. The transaction is expected to complete on 1 June 2012, delivering a combined group pro forma CY2011 EBITDA of A$97m, a 86.1% increase on M2 pro forma standalone basis. The pro forma CY2011 EPS accretion is 8.6% on an underlying EPS basis and 22.8% on a
free cash flow per share basis

M2 Telecommunications has consistently delivered growth in both revenues and profit year-on-year since listing on the ASX in 2004 and was added to the S&P/ASX300 in September 2011.

M2 has grown substantially through acquisitions including Time Group (Feb 2012, A$18.35m), Clear Telecoms (Feb 2011, $A24.5m), various businesses from the receivers of Commander Communications (2009), People Telecom (2008, A16.9m) and Orion (2007, $20m).

For M2 this represents a transformational acquisition that significantly enhances M2’s reach, scale and capability. It consolidates M2’s position as the leading challenger in the Small and Medium Business (“SMB”) market, contributes a proven managed / hosted services capability, adds 500 team members, including the experienced Management team, and offers a cross-sale opportunity.

Headquartered in Melbourne, Primus Australia is among the largest fixed line carriers and Internet Service Providers in Australia and provides a full suite of telecom services to consumers and small and medium business customers across the country. As well as its brands and staff, primary assets of Primus include:

  • approximately 165,000 customer contracts, comprising a mixture of residential, small and medium business, corporate and wholesale customers, adding significant scale to the M2 Group;
  • the national Primus network including data centres and metro fibre rings, providing the capability to sell and support next generation cloud based services.

Total costs for the transaction are put as A$230.7m which includes the A$192m acquisition, A$9m of costs associated with the acquisition, and A$29.3m costs associated with the refinancing of M2’s debt facility.

M2 will fund the acquisition and refinance existing debt through an A$83.1 million
Entitlement Offer and approximately A$139.6 million of senior bank debt.

  • The entitlement offer provides of one fully paid ordinary share in M2 for every four M2 shares held by shareholders at an issue price of A$2.66. The Offer represents a 23.8% discount to M2’s closing price of $3.49 on 13 April 2012.
  • A new $182.5m senior facility to be provided by Westpac and Bankwest. As an interim measure M2 has also entered into a $250 As an interim measure M2 has also entered into a $250m 364-day senior secured acquisition bridge financing facility that is expected to remain undrawn pending completion of the Entitlement Offer and senior bank facility.

Goldman Sachs Australia and its affiliates are acting as exclusive financial
adviser to M2 in relation to the Acquisition, sole underwriter of the A$83.1 million Entitlement Offer and sole mandated lead arranger, underwriter and bookrunner of the A$250.0 million acquisition Bridge Financing Facility. Lander & Rogers are acting as legal adviser to M2 in relation to the Acquisition, and Gilbert + Tobin in relation to the Entitlement Offer and Bridge Financing Facility.

Geoff Horth, M2’s Chief Executive Officer, stated, “We are delighted to bring Primus Australia into the M2 Group. The combined group will benefit from the strengths that each entity brings. The introduction of the Primus suite of next generation services along with the skilled and passionate team will ensure our sales teams are armed with the latest managed/hosted service offerings to meet the needs of current and prospective customers. On behalf of the Company, I look forward to welcoming the Primus Team and customers to the M2 Group.”

Peter D. Aquino, Chairman, President and CEO of PGTI stated, “The successful sale of Primus Australia to M2, a local operator in a consolidating market, is a transforming transaction for both companies. The net proceeds from the sale of Primus Australia represent a significant outcome of our strategic review process. We will assist M2 during the upcoming transition period, and ensure that our customers and employees have a smooth handoff to an experienced M2 leadership team.”

About M2 Telecommunications Group
Established in 1999, M2 Telecommunications Group Ltd is Australia’s largest network
independent provider of telecommunications services. M2 employs more than 450 people nationwide, across the Melbourne headquarters and offices in Hobart, Sydney, Brisbane, Perth and Wollongong. M2 also provides fixed line, 3G mobile and broadband services in New Zealand.
M2’s retail business division operates under the leading brands of Commander, Southern Cross Telco and in New Zealand, Black + White. Within the retail division, M2 offers a suite of telecommunications services, equipment, personalised service and value-added offerings targeted principally at the small and medium sized business market. The retail products are offered across Australia through M2’s national dealer and agent network, under the trusted Commander brand.
Through the M2 Wholesale division, M2 provides wholesale fixed line, mobile and data telecommunications services to small and medium-sized telecommunications service providers and Internet Service Providers (“ISPs”).

About PTGi

PTGi (Primus Telecommunications Group, Incorporated) is a leading provider of advanced communication solutions, including traditional and IP voice, data, mobile services, broadband Internet, collocation, hosting, and outsourced managed services to business and residential customers in Canada, the United States, and Australia. PTGi is also one of the leading international wholesale service providers to fixed and mobile network operators worldwide. PTGi owns and operates its own global network of next-generation IP soft switches, media gateways, hosted IP/SIP platforms, broadband infrastructure, fiber capacity, and data centers located in Canada and Australia. Founded in 1994, PTGi is headquartered in McLean, Virginia.

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