$13.4B Combo: Uniti-Windstream Merger Called Transformative

Uniti's headquarters in Little Rock (Emma Mayes)

The $13.4 billion reunification of Little Rock’s Uniti Group Inc. and Windstream Holdings is creating huge opportunities for the reconstituted company, transforming not only the company but the entire digital infrastructure industry, Uniti CEO Kenny Gunderman says.

“We’ll be a national leader in our industry based right here in Little Rock,” said Gunderman, who will lead the unified company. “There’s really no other company in our industry that will have the scaled platform for growth and mission-critical fiber reach that we will have, especially in the less competitive markets of the Midwest and Southeast.”

The combined company, which will keep the Uniti name, will be the “largest independent fiber provider in the country,” Gunderman said in a media briefing earlier this month.

After the merger was announced, Uniti shares tumbled 17%. But Gunderman is still confident the combination will contribute to the growth of the company. He believes the merger will “unlock’’ new strategic opportunities.

“With an enhanced balance sheet and free cash flow profile, we’ll be able to accelerate fiber-to-the-home deployments with the option to expand build-outs by up to 1 million additional households beyond our current buildout plan,” Gunderman said.

Additionally, Gunderman said the new Uniti stands to benefit from other technological innovation and growth in the industry.

“I believe this combination will be transformative for Uniti and the digital infrastructure industry,” Gunderman said. “It comes at a very exciting time for our industry, when the demand and runway for fiber has never been greater. We stand to benefit significantly from the rapid digital transformation that is impacting the world, which is expected to accelerate even more with the advent of things like generative AI, autonomous vehicles, robotics, the metaverse and many others.”

The merger comes after nearly a decade of separation, and is set to be completed in the second half of 2025.

Uniti will join its fiber network with Windstream’s fiber-to-the-home business in hopes of creating a premier fiber network in the United States.

The transaction factors in $4.4 billion in company revenues and $8 billion in corporate debt, as well as $425 million in cash and $575 million of preferred equity to Windstream shareholders.

Under the agreement, Uniti’s shareholders will hold approximately 62% of the outstanding common equity of the combined company. Windstream shareholders will hold approximately 38% of the outstanding common equity. They will also receive nonvoting warrants to acquire up to 6.9% more of common shares.

Key Windstream shareholders are also set to roll their current holdings into the combined company. This includes Windstream’s largest shareholder, Elliott Management Corp. of Florida, an investment firm managing more than $65 billion in assets.

A new nine-person board of directors will consist of Uniti’s existing five board members, two new board members selected by Elliott and two new board members jointly selected by Uniti and Elliott.

Together, the new Uniti will serve more than 1.1 million customers and 1.5 million existing homes, with hopes to expand that presence post-merger, according to Gunderman. The companies will have 217,000 fiber route miles across 47 states; 141,000 of those miles come from Uniti.

The new company will also own 10 million strand miles of fiber, 8.5 million of which come from Uniti. Gunderman said in the briefing that the entire Library of Congress can be transmitted over 1 strand mile of fiber in a matter of minutes.

The merger is also set to resolve inefficiencies with Uniti and Windstream’s landlord-tenant relationship by reuniting “Windstream’s network with the operations, reducing the complexity of the lease arrangements with Uniti,” said Windstream CEO and Chairman Paul Sunu.

Uniti currently leases fiber to Windstream as part of a master lease agreement that establishes Windstream as Uniti’s largest customer. The master leases were set to be renewed in 2030.

There’s History

Uniti and Windstream haven’t always been so friendly. Windstream spun off Uniti, then known as Communications Sales & Leasing, in 2015 to reduce its debt by $3.2 billion. Windstream then leased the spun-off network assets back under a long-term agreement with Uniti.

In 2019, the two companies went to court when Windstream filed for Chapter 11 bankruptcy. Windstream sought to reduce its lease payments to Uniti, stating the lease terms were above market rates and not properly structured.

Uniti threatened to evict Windstream from its network during the battle, but the companies eventually settled in 2020.

As part of the settlement, Uniti agreed to invest up to $1.75 billion in growth capital improvements for fiber and other assets leased by Windstream, pay Windstream about $490 million and purchase fiber assets from Windstream for an additional $285 million, among other conditions.

Windstream emerged from bankruptcy in September 2020, largely due to the settlement with Uniti. Windstream also restructured and went private in 2020.

Changes in Structure

Uniti currently operates as a nontaxable real estate investment trust, but the combined company will be a taxable C corporation.

This means the income tax liability will no longer be passed through to shareholders, and Uniti will have to pay federal and state income tax.

It is unclear if this will cause shareholder turnover, but Gunderman said Uniti has been “evaluating lots of options and opportunities” to position Uniti for growth in the future and “best deliver meaningful value” to shareholders.

“That long-term view is the building block of how we’ve always approached managing our business,” Gunderman said. “Merging with Windstream is a natural fit with significant strategic and financial benefits as we look at the current landscape.”

An analyst report by BofA Securities of New York stated that Uniti is looking at “a long road to equity value recovery, in our view, due to the elongated time to merger close, synergy realization and post-merger execution.”

The same analyst report stated that 54% of the combined company’s revenue is expected to come from consumer sources, including Windstream’s Kinetic fiber to the home, 20% from fiber wholesale and enterprise and 24% from managed services.

“We expect the Kinetic brand to be the go-forward consumer brand for the combined company,” Sunu said. “Once the two companies have integrated, the leadership team will determine the branding strategy for the enterprise and wholesale businesses that currently operate at each company.”

The combined company will have about 10,000 employees, but Uniti has not commented on what staffing will look like post-merger.

The existing debt structures of each company will initially remain as separate credit silos, and until closing, Windstream and Uniti will continue to operate as separate companies.

“Windstream will continue to operate its existing suite of brands for Kinetic, wholesale and enterprise as normal, and we will continue to look for new opportunities to expand fiber broadband in rural America,” Sunu said.

The analyst report stated Uniti expects to achieve positive free cash flow in 2026, and will focus on building out fiber through 2024 and 2025.

Rural Routes

A main focus of the merger is the expansion of fiber into rural communities. Around 75% of Kinetic’s footprint is in markets with fewer than 20,000 households, and around 85% has no fiber overbuilders, or other companies that serve the same customers.

“The ability to expand our broadband build-out is one of the results of this combination that we’re most excited about,” Gunderman said. “I grew up right here in Arkansas, and I know firsthand what the rural-urban digital divide looks like for underserved communities. It means people have access to less opportunities, people get left behind, and people don’t get the chance to build the life they deserve. That divide is something we want to eradicate, and the expansion of our network will be a significant step toward that.”

Gunderman also believes rural fiber connectivity helps expand public safety.

“In the face of extreme weather events and natural disasters, early warning systems via smartphones, supported by fiber optic connectivity to cell towers, are enabling us to send lifesaving alerts,” he said. “And when these weather events hit, our stronger fiber network also allows us to reach out for medical help and stay connected with our loved ones.”

As for staying in Little Rock, “This is and will continue to be our home,” Gunderman said. The merged company will maintain its headquarters in Little Rock, which Gunderman said would maintain its existing talent base and operations, as well as benefit Arkansas communities.

He also expects Uniti will be “better positioned to drive growth and create more jobs over the long term.”