Mpower Purchase Triggers $500,000 Agent Equity Payout

The pending aquisiton of CLEC Mpower Communications Corp. by rival TelePacific Communications will trigger more than $500,000 in payouts to Mpower agents that earned warrants in the company.

JR Cook, vice president of alternate channels for Mpower, says the company issued 1,054,576 warrants to agents since the program was announced in October 2003. The total payout is expected to be $548,377, he says, based on a 52-cents-per-share increase between the strike price of $1.40 per share and Mpower’s selling price.

TelePacific, which is privately held, will pay approximately $204 million, or $1.92 per Mpower share. The deal will be financed by Credit Suisse and Bank of America, and is expected to close in the third quarter.

“It was a great way to get agents to feel they were part of the company,” says Steve Braverman, one Mpower agent that is expecting to cash out. He holds warrants under Chicagobased master agency X4 Communications Inc., where he serves as CEO, and also under his previous company, Telelink Communications, which is one of three agencies that came together in 2004 to form X4.

Agencies like X4 earned warrants by beating their monthly revenue numbers by $10,000, explains Cook. So, if the agency’s target was $50,000, but it billed $60,000, it would receive 10,000 warrants.

Braverman would not disclose the number of warrants his companies hold, but says he plans to reinvest the money in X4 by hiring an agent manager for Chicago or California — two primary markets for the combined company.

TelePacific traditionally has served California and the Las Vegas market; acquiring Mpower strengthens its California and Nevada coverage, and expands its reach to parts of Illinois, where Mpower is headquartered. The merger will make TelePacific one of the largest CLECs in the western United States.

At press time, details on the future of the combined partner program were not available. But agent Braverman says he is optimistic since both companies are channel-centric.

Ken Bisnoff, senior vice president of strategic opportunities at TelePacific, says 43 percent of the CLEC’s business comes from the channel. He says Mpower is similarly prochannel. Bisnoff confirms TelePacific is acquiring Mpower agent agreements and will live up to those commitments. Additionally, he says, a majority of Mpower’s staff will come over to TelePacific so there will be “a lot of familiar faces.”