Primus Acquires C&W’s U.S. Retail Customers

In a move expected to generate approximately $150 million in annual revenue, Primus Telecommunications Group is acquiring the U.S.-based retail switched voice services customer base of Cable & Wireless USA for $32 million. The acquisition could potentially add approximately 31,000 small- and medium-sized enterprise (SME) and large corporate customers to the McLean, Va.-based Primus’ existing customer base of more than 2.4 million customers.

According to the terms of the transaction, Primus will pay a fee to C&W for each individual customer after that customer is actually migrated based upon that customer’s monthly usage amount. The British-based C&W has approximately 32,000 U.S. customers. The transition period is expected to take about four months. Billing, customer support and other back-office functions will be assumed by PRIMUS through the scaling of existing systems.

The acquisition will be effected through a deferred payment arrangement over a two year period and is subject to the usual Federal Communications Commission and applicable state PUC approvals.

The acquired business customers will be integrated into Primus Telecommunications, a wholly-owned subsidiary of Primus Telecommunications Group. Primus Telecommunication Inc. currently has divisions providing a suite of voice, data, Internet and Voice-over-Internet Protocol (VoIP) services to business and international consumer customers, as well as a unit offering these services through independent agent channels throughout the country.

“C&W’s voice customer base is an exact fit with Primus’ strategy for profitable growth,” said K. Paul Singh, chairman and CEO of Primus. “Primarily consisting of desirable small- and medium-sized enterprise customers in one of our core markets, the acquired customer base could double the size of our U.S. retail business. The anticipated significant increase to our size and scale should enable us to achieve critical mass in the U.S., which will complement Primus’ most mature and profitable subsidiaries in Australia and Canada. We believe the acquisition will generate positive free cash flow within the first year, assuming the transition goes according to our expectations.”

Primus owns and operates an extensive global backbone network of owned and leased transmission facilities, including over 300 IP points-of-presence (POPs) throughout the world, ownership interests in over 23 undersea fiber optic cable systems, 23 international gateway and domestic switches, and a variety of operating relationships that allow the company to deliver traffic worldwide.

The company has been expanding its e-commerce and Internet capabilities with the deployment of a broadband fiber optic ATM+IP network.

In April, Primus received additional funding through an increase in its existing credit line with RFC Capital Corp., a division of Textron. The estimated net cash proceeds of $10 million increased the company’s existing line of credit to approximately $30 million.

Primus also reduced its existing vendor debt and related future commitments by $19.5 million. Through a settlement agreeing to pay $5 million in cash, Primus will pay an additional $1.5 million by April 2, 2003, and has issued 1.2 million shares of common stock to the vendor for the elimination of $17.8 million in existing vendor debt and $1.7 million in future related service obligations.

The vendor debt had interest payments of $1.2 million in 2002, and its retirement represents an additional $1.4 million in future interest savings (assuming the vendor debt was held to maturity) as well as the elimination of principal payments which were scheduled to have been made over the next four years.

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