Windstream to Buy Paetec Holding Corp. in $2.3 Billion Deal

by Lance Turner  on Monday, Aug. 1, 2011 7:02 am  

"This transaction significantly advances our strategy to drive top-line revenue growth by expanding our focus on business and broadband services," Jeff Gardner, president and CEO of Windstream, said.

Windstream Corp. of Little Rock said Monday that it will expand its broadband services and geographic footprint by acquiring Paetec Holding Corp. of Fairport, N.Y., in a transaction valued at about $2.3 billion.

The deal, expected to close in six months, will expand Windstream's presence from 29 to 46 states and the District of Columbia. Windstream, with 10,000 employees, is taking on a company with 5,000 employees, including almost 900 in Rochester, N.Y.

"The combined company will have a nationwide network with a deep fiber footprint to offer enhanced capabilities in strategic growth areas, including IP-based services, data centers, cloud computing and managed services," Jeff Gardner, president and CEO of Windstream, said in a news release.

"Financially, we improve our growth profile and lower the payout ratio on our strong dividend, offering investors a unique combination of growth and yield."

The merger will also boost Windstream's nationwide, fiber route miles to 100,000 from 60,000. Windstream said it will offer data center services across the United States and have improved capability to serve multi-location business customers.

The acquisition continues Windstream's strategy to shift the company's focus away from residential landline service and toward its broadband and business services segments. In 2010, it completed four acquisitions as part of that goal. And in its last two quarterly earnings reports this year, it reported business services revenue up 2 percent. Windstream will report second-quarter earnings on Friday. 

The deal is subject to state and federal regulatory and Paetec shareholder approval.

Paetec (Nasdaq: %%PAET%%), founded in 1998, is a competitive local exchange carrier that provides telecommunications services mainly to businesses in 46 states and the District of Columbia.

The company has seven data centers and owns about 36,700 route miles of fiber in parts of 39 states and D.C.

Windstream (Nasdaq: WIN) said Stephens Inc. of Little Rock and J.P. Morgan Securities LLC are acting as financial advisers to the deal. Skadden Arps Slate Meagher & Flom LLP is acting as legal adviser to Windstream.

Shares of Windstream rose about 2 percent in pre-market trading on Monday.

The Deal

Per the deal, Paetec shareholders will receive 0.460 shares of Windstream common stock for each Paetec share. Windstream expects to issue about 73 million shares of stock valued at about $891 million, based on the company’s closing stock price on July 29.

Windstream also will assume or refinance Paetec’s net debt of about $1.4 billion at the time the deal closes. Paetec stockholders are expected to own about 13 percent of the combined company upon closing of the transaction.

Windstream said combined company would have had $6.1 billion in total revenue and about $2.4 billion in adjusted operating income before depreciation and amortization, which excludes non-cash pension expense, restructuring charges and stock-based compensation expense, on a pro forma basis for the last 12 months ended March 31.  It said business and broadband revenues would have comprised about 70 percent of total revenue.



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