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New Ulm Telecom enters spin-off agreement with Hector Communications

November 27, 2012
The Journal

NEW ULM - New Ulm Telecom, Inc. has announced an agreement in which Hector Communications Corporation will spin off its independent local exchange companies to its three owners/shareholders: Arvig Enterprises, Inc., Blue Earth Valley Communications, Inc. and New Ulm.

Hector currently owns a total of 12 telecommunications companies, including nine local exchange telephone companies, with customers located in Minnesota, North Dakota and Wisconsin.

Hector and its shareholders determined that by spinning-off these local exchange telephone companies to these constituent shareholders, these individual shareholders would be able to take advantage of their geographical proximity to these local exchange telephone companies to continue to provide continued and uninterrupted service to customers of these local exchange telephone companies; more fully integrate these local exchange telephone companies into their current operations and existing operating businesses and allow more efficient branding and delivery of services to these customers.

The spin-off transaction is subject to approval of the Minnesota Public Utilities Commission (MPUC). As previously announced, on November 5, 2012, the Hector parties filed a joint petition with the MPUC for the spin-off of the assets.

The transaction is expected to close prior to year-end.

Under the spin-off agreement, New Ulm would receive 100 percent of the Sleepy Eye Telephone Company (SETC) stock. SETC currently serves customers in southern Minnesota, near or adjacent to New Ulm's existing operations, which include customers in southern Minnesota and northern Iowa.

After the closing of the spin-off, New Ulm would have no continuing interest in the local exchange telephone companies that were spun-off to either Arvig Enterprises, Inc. or Blue Earth Valley Communications, Inc.

New Ulm's President and Chief Executive Officer, Bill Otis remarked, "We are excited to be acquiring SETC as part of this transaction. We believe that with this spin-off, we will be able to bring to SETC customers, the same high-quality services we have delivered to our existing communications customer base."

The spin-off is being structured as a tax-free reorganization under Section 355 of the Internal Revenue Code, and New Ulm expects that it will not recognize any loss or gain on the transaction. In connection with the spin-off, the three Hector shareholders will separately contribute funds to enable Hector to pay off its bank indebtedness. New Ulm anticipates that it will borrow approximately $3.1 million to pay its allocated portion of the Hector indebtedness in connection with the spin-off.

New Ulm anticipates that, after completing the spin-off, Hector will wind down its operations and distribute its other operating and non-operating assets to its three owners.

 
 

 

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