Windstream to Buy Iowa Telecom in $1.1 Billion Deal

Windstream to Buy Iowa Telecom in $1.1 Billion Deal
Windstream CEO Jeff Gardner says the Iowa Telecom properties are "well-run" and "profitable."

Windstream Corp. of Little Rock said Tuesday that it will buy Iowa Telecommunications Services Inc. of Newton, Iowa, in a $1.1 billion deal.

The Little Rock-based telecommunications firm (NYSE: WIN) said the deal will allow it to expand into Iowa and Minnesota, adding about 256,000 access lines, about 95,000 high-speed Internet customers and about 26,000 digital TV customers.

As part of the deal, Iowa Telecom's chairman and CEO, Alan Wells, will join Windstream's board of directors.

"These are well-run, profitable properties in very rural service areas that expand our presence in the Upper Midwest and grow our free cash flow per share," Jeff Gardner, president and CEO of Windstream said in a news release. "I also am pleased to have Alan join our company's board of directors. His financial acumen and executive management experience will be a tremendous asset."

In Search of Growth 

The deal is the latest in a string of acqusitions for the telecommunications firm, a spinoff of wireless firm Alltel Corp., which was purchased last year by Verizon Wireless.

Windstream announced its most recent buy -- a $643 million deal for NuVox of South Carolina -- on Nov. 3. In September, it announced a $141 million deal to buy Lexcom Telecom of North Carolina. In May, it announced a $330 million deal to buy D&E Communications of Ephrata, Pa.

The D&E and Lexcom deals was financed with a $400 million debt offering.

The deals come despite a dearth of expansion opportunities.

"Windstream is certainly a company that would like to expand at some point, but there is very little out there of a certain size" that the company could pursue, Christopher King, senior analyst with Stifel Nicolaus & Co. Inc. of St. Louis, told Arkansas Business in July. "There are certainly no other [rural local exchange carriers] of any size that Windstream could buy to make a tangible difference in the company."

About Iowa Telecom

Iowa Telecom (NYSE: %%IWA%%) provides communications services to residential and business customers in Iowa and Minnesota. Tuesday's deal also includes Iowa Telecom's 15 FCC Advanced Wireless Service licenses and three 700 MHz Band licenses.

Iowa Telecom has about 800 employees, including about 350 at its corporate headquarters in Newton, according to Windstream's news release. Windstream said it will "maintain an operating presence in the headquarters building and plans to expand the existing call center." 

The deal is expected to close in mid-2010, subject to conditions including necessary approvals from federal and state regulators and Iowa Telecom shareholders. 

The Deal

Under terms of the agreement, Iowa Telecom shareholders will receive 0.804 shares of Windstream stock and $7.90 in cash per each Iowa Telecom share.

Windstream expects to issue about 26.5 million shares of stock valued at about $269 million, based on the company's closing stock price on Monday, and pay about $261 million in cash as part of the transaction.

Windstream also will repay estimated net debt of about $598 million.

Windstream said it will finance the cash portion of the deal and the repayment of Iowa Telecom's outstanding indebtedness with the proceeds from a debt financing or additional bank borrowings. 

Windstream estimates the deal will be accretive to free cash flow in the first year following the closing after expected annual synergies of about $35 million in operating expenses and capital expenditure savings and excluding integration charges. The deal also includes tax assets with an estimated net present value of about $130 million, according to Windstream's news release.

Click here to see the news release from Windstream.

Little Rock-based investment firm Stephens Inc., as well as Goldman, Sachs & Co. and BofA Merrill Lynch are acting as financial advisers on the deal. Skadden, Arps, Slate, Meagher & Flom LLP are legal advisers to Windstream, and J.P. Morgan Securities Inc. and Fredrikson & Byron, P.A. are acting as financial advisers and legal advisers to Iowa Telecom.