By Liana B. Baker
(Reuters) - Fusion Telecommunications International Inc will buy the cloud and business services unit of Birch Communications in a deal that creates a combined company worth about $950 million, including debt, according to people familiar with the matter.
The agreement, expected to be announced later on Monday, will create one of the largest North American cloud services providers, with more than 150,000 business customers, 30 data centers and 31,000 miles of fiber network, the sources said.
Fusion has agreed to buy privately held Birch's cloud and business services unit, which represents most of its revenue, but not Birch's legacy consumer business that is less profitable and has higher customer churn rates, the sources said.
Fusion will pay Birch with its own stock.
Birch shareholders, led by majority owner private equity firm Birch Equity Partners LLC, will get about 73 million Fusion shares collectively worth about $281 million or $3.85 per share, a premium of more than 200 percent compared to the end of trading on Friday, according to the sources.
Fusion has also agreed to assume Birch's existing debt of approximately $458 million, which it will refinance together with its own debt of about $101 million, the sources added.
As a result, Fusion shareholders will own 25 percent of the combined company, while Birch shareholders will own 75 percent, according to the sources.
Fusion's chief executive, Matthew Rosen, will run the combined company and become its chairman, the sources said.
The sources asked not to be identified ahead of an official announcement. Fusion declined to comment while Birch could not be immediately reached for comment.
The deal is the latest example of consolidation in the business communications sector, as smaller vendors like Fusion seek to take enterprise customers away from larger players such as AT&T Inc and Verizon Communications Inc by offering integrated voice, data and cloud services.
In one of the biggest deals in this consolidation wave, CenturyLink Inc announced last year a $24 billion acquisition of Level 3 Communications Inc, which is still waiting for regulatory clearance.
Birch, a private nationwide telecommunications company founded in Atlanta in 1996, had already been seeking to diversify its business. It bought cloud technology provider CBeyond for $323 million in 2014 to expand its services to small- and medium-size businesses.
Fusion, a New York-based company with a market capitalization of $27.8 million, has done several smaller deals as well, such as the $28 million acquisition of business communications firm Apptix last year.
(Reporting by Liana B. Baker in San Francisco; Editing by Himani Sarkar)