$400 Million Telecom Deal Beat the Odds in Fluctuating Market

The $400 million sale of ATX to Corecomm closed Sept. 29, despite an undulating stock market and a slide of nearly 80 percent in ATX's share price between the March signing and the September closing. While the original purchase was set for $900 million, attorney Michael C. Forman said his client ATX and Corecomm were both committed to closing because "[t]he parties felt it was a good match."

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An undulating stock market doesn’t always bode well for attorneys trying to structure a deal. For Michael C. Forman, a partner at Philadelphia’s Klehr, Harrison, Harvey, Branzburg & Ellers, the slumping prices in the competitive local exchange carrier – or CLEX – market proved to be a challenge, but not a lethal blow, to the sale of Bala Cynwyd, Pa.’s ATX to Corecomm of Ohio. The $400 million agreement to purchase the local carrier closed Sept. 29. While nothing to sneeze at, the amount is a far cry from the price the parties originally settled on. Talk of a deal began in January, and the two companies put ink to paper in March. The original purchase was set for $900 million in common and preferred stock and cash, Foreman said. And then the bottom fell out of the market. “It was an unusual deal in that we agreed to the sale while the CLEX market was robust,” he said. “But we closed when it was beaten down significantly.” The company suffered a slide of nearly 80 percent in its share price between the March signing and September closing. There was no mechanism in the deal that tied ATX’s selling price to market factors, but the company ultimately restructured it anyway because it “was committed to closing, as was Corecomm,” Forman said. “The parties felt it was a good match.” The 10-month negotiation process began at a semi-closed auction, Forman said, after which ATX talked with other buyers but settled on Corecomm. The regulatory aspects of the transaction involved securing 30 approvals from the Public Utilities Commission, one for every state in which ATX operates. Between March and the end of September, the shareholder approval, financing and regulatory approval from the FTC and FCC were nailed down. Fortunately, there were no significant antitrust issues, Forman said. “ATX was desirable to Corecomm because of the added presence in the Northeast corridor,” Forman said. The company, which is projected to earn $165 million in revenues for the year, operates ISP, videoconferencing, long-distance and other information technology services in what he calls “the former Bell Atlantic footprint.” The coverage area includes parts of Virginia to the top of New York. ATX will no longer exist under that name but will be part of Corecomm, he said. KLEHR HARRISON ATX brought in Klehr Harrison as special counsel for the deal. The company had long-term, pre-existing relationships with several other firms over the years, Forman said, but for this transaction, the company was seeking a “young, entrepreneurial, aggressive” firm rather than a “Wall Street firm.” ATX interviewed six firms, he said, but Klehr had the outlook they wanted. Forman said the firm beat out several other contenders, including some Philadelphia heavy hitters he declined to name. A core group of seven attorneys made up the Klehr team for ATX. Forman worked on the transaction itself with associates William W. Matthews and Jason C. Menegakis. Partner Lawrence J. Arem handled tax and employment issues. Partner Richard S. Roisman was responsible for bank financing, and Jennifer A. Irrgang worked on regulatory issues. Associate Daneen E. Downey performed due diligence. Corecomm was represented by two New York firms. Skadden Arps Slate Meagher & Flom was responsible for financing; Paul Weiss Rifkind Wharton & Garrison handled Corecomm’s transactional work.

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