Windstream to buy PAETEC
Windstream Corp. (Nasdaq:WIN) says it has agreed to acquire fellow competitive local exchange carrier (CLEC) PAETEC Holding Corp. (Nasdaq:PAET) for approximately $2.3 billion. The transaction is expected to close within six months.
Windstream Corp. (Nasdaq:WIN) says it has agreed to acquire fellow competitive local exchange carrier (CLEC) PAETEC Holding Corp. (Nasdaq:PAET) for approximately $2.3 billion. The transaction is expected to close within six months, after gaining approvals from federal and state regulators and PAETEC shareholders. The boards of both companies have approved the deal.
PAETEC shareholders will receive 0.460 shares of Windstream common stock for each PAETEC share. Windstream expects to issue approximately 73 million shares of stock valued at approximately $891 million, based on the company’s closing stock price on July 29, 2011. Windstream also will assume or refinance PAETEC’s net debt of approximately $1.4 billion at the time of closing. PAETEC stockholders are expected to own approximately 13 percent of the combined company upon closing of the transaction.
Windstream adds it has nailed down $1.1 billion in committed financing in connection with the deal to give it the option to refinance the assumed debt.
PAETEC operates in 46 states and the District of Columbia and has focused primarily on business services. The company has seven data centers in the U.S. and owns approximately 36,700 route miles of fiber in portions of 39 states and the District of Columbia. The merger would give Windstream a nationwide network spanning approximately 100,000 route miles and expand its ability to provide metro fiber, Ethernet, data center, and managed services.
Windstream estimates the 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 12 months ended March 31, 2011.
“This transaction significantly advances our strategy to drive top-line revenue growth by expanding our focus on business and broadband services,” said Jeff Gardner, president and CEO of Windstream. “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. Financially, we improve our growth profile and lower the payout ratio on our strong dividend, offering investors a unique combination of growth and yield.”
Windstream expects the transaction will be accretive to free cash flow per share, excluding merger and integration costs, in the first year following the closing. The CLEC pegged those costs at $50 million in operating expense in the first year after the closing and approximately $55 million in capital expenditures over the first three years following closing.
The transaction is expected to generate annual pre-tax operating cost synergies of approximately $100 million and capital expenditure savings of approximately $10 million, which are expected to be fully realized by the third year after closing.