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PSINet Propels Itself into ASP Arena with $1.9 Billion Metamor Merger

PSINet Inc. Wednesday procured international e-commerce solutions provider Metamor Worldwide Inc. for $1.9 billion in stock.

PSINet (PSIX) plans to utilize the acquisition as a catalyst to construct a global business infrastructure equipped to provide web design services, managed Web hosting and applications outsourcing.

The deal marks PSINet's first venture into the application service provider marketplace. Given PSINet's aggressive growth by acquisition into the global Web hosting arena, the Metamor (MMWW) buyout may be the first of many deals to come.

The acquisition also gives PSINet a controlling interest in Metamor's publicly traded e-commerce subsidiary Xpedior Inc.

Xpedior (XPDR) provides comprehensive e-business solutions worldwide for Fortune 1000 companies and government institutions and will work to supply PSINet's 90,000 worldwide clients with legacy integration and Web development services.

Xpedior remains an independent business entity with PSINet taking up two seats on its board of directors through its 80 percent stock ownership of the firm.

William Schrader, PSINet chairman and chief executive officer said he supported Xpedior's independence because the firm can provide essential backward integration services to PSINet's clients, of which only 5,000 currently maintain a backoffice integrated Web presence for e-commerce.

"When customers asked us to migrate legacy applications into a Web environment, we had to send their business elsewhere," Schrader said. "Oftentimes we never saw that customer again. Xpedior does that for us now. It's a great way to get our customers to stick with us."

"E-commerce is an important component of our Internet strategy," Schrader said. "This deal is a real no-brainer. The acquisition of Metamor Worldwide furthers our plans to move into the applications outsourcing arena."

Metamor has clients ranging from Fortune 1000 to middle market businesses. It offers high-speed services including e-commerce solutions, package software implementation and integration, custom application development and application outsourcing, in addition to Web hosting and network integration.

PSINet expects Metamor to reap the benefits of cross-selling its services with existing clients. Over the next three years PSINet projects that Metamor should produce about $500 million in sales.

The deal also provides PSINet with an expert staff to help it break into ASP and integration services. Compared to the 450 Exodus Communication, Inc. (EXDS) worldwide IT specialists, PSINet maintains numeric superiority over the competition by acquiring 5,400 experts worldwide.

The transaction is structured as a tax-free reorganization consisting of just under 40 million shares of PSINet common stock. Each share of Metamor will be exchanged for .9 shares of PSINet common stock.

Completion of the transaction is subject to shareholder and regulatory approvals. The transaction is scheduled for completion by the middle of the year.