CHARLOTTE, N.C. — US LEC (Nasdaq: CLEC) is merging with privately held PAETEC Communications in a deal worth $1.3 billion.

The companies announced the merger Monday before the markets opened.
US LEC shareholders will own one third of the new venture, which will be called New PAETEC. The combined company will be public and trade on the Nasdaq under the symbol CLEC, which had been utilized by US LEC.

US LEC is a competitive local exchange carrier (CLEC) based in Charlotte with operations across the Southeast, including the Triangle. It provides telecommunications, data and Internet services across a 16-state network.

PAETEC, which is based in Fairport, N.Y., also provides communications services focused on businesses.

Headquarters for New PAETEC will be based in New York, but the US LEC operation in Charlotte will be maintained, the companies said in a joint statement. The merged company will have some 45,000 customers, operate in 52 of the largest 100 U.S. markets and produce some $1 billion in revenues.

No job cuts were specified, but the companies said they had already identified $40 million in annual cost savings beginning in 2008. Some $25 million will be saved the first year.

Facilities and operations will be consolidated, the companies said.

US LEC management will take a lower profile in the merged company. Arunas Chesonis, the founder of PAETEC, will serve as chairman and chief executive officer of New PAETEC. Richard Aab, the chairman of US LEC, will serve as vice chairman.

Keith Wilson, the chief financial officer of PAETEC, will serve as CFO of the merged company. E.J. Butler, chief operating officer of PAETEC, will be the COO.

J. Lyle Patrick, chief financial officer of US LEC, has been tasked to lead integration efforts as vice president of integration.

The deal is expected to close in the fourth quarter.

The transaction includes US LEC buying out Class A stockholders Bain Capital and Thomas H. Lee Partners for $268 million.

US LEC shares closed at $4.77 on Friday. The stock has risen steadily since hitting a 52-week low of $1.51 last December 21. Its 52-week high is $5.87.

On March 15, US LEC shares closed at $1.94. As of May 17, the price was $2.99.

On Monday morning, US LEC said it lost $7.6 million, or 25 cents per share, in the second quarter. That’s a $1.2 million improvement for the same quarter in 2005.

Revenues increased to $106.7 million, up $4.1 million from the first quarter of 2006 and $11.4 million from one year ago.

Date revenues increased to $34.3 million, making up 32 percent of US LEC revenues.

As of June 30, US LEC had 27,800 customers. Of those, 21,500 utilized data services.