AUGUST 18, 2010 -- Windstream Corp. (Nasdaq: WIN) has announced a definitive agreement to acquire Q-Comm Corp., a privately held regional fiber transport and competitive local exchange carrier based in Overland Park, KS. The carrier pegged the transaction value at approximately $782 million.
The transaction includes Q-Comm’s wholly owned subsidiaries Kentucky Data Link Inc., (KDL), a fiber services provider in 22 states, and Norlight Inc., a competitive local exchange services company primarily serving the Midwest. Both KDL and Norlight are based in Evansville, IN.
Windstream expects to issue approximately 20.6 million common shares valued at $237 million based on Windstream’s closing share price on August 17 of $11.49, and pay approximately $278 million in cash consideration for outstanding equity interests in Q-Comm. Windstream also will repay estimated Q-Comm debt balances of approximately $267 million, net of cash acquired.
Although Windstream expects to have sufficient liquidity in the form of cash balances and revolving credit capacity to fully finance the cash portion of the purchase price and debt repayment, it says it may choose to raise debt financing in the future.
“This transaction builds on Windstream’s strategy to become a next-generation telecom provider focused on broadband and enterprise customers,” said Jeff Gardner, president and CEO of Windstream. “KDL’s extensive fiber network creates savings for us as well as opportunities to grow business revenues, particularly transport services for wireless carriers.”
The transaction is structured as an acquisition of 100 percent of the stock of Q-Comm by Windstream. Prior to closing, Q-Comm will divest certain assets to its shareholders, such that the remaining businesses acquired by Windstream will consist of KDL and Norlight.
The boards of both companies have approved the transaction, which is expected to close in the fourth quarter of 2010, subject to certain conditions, including necessary approvals from federal and state regulators.
To more fully leverage its new assets, Windstream says it plans to increase success-based capital expenditure investments in the near term. These investments will be concentrated in the wireless backhaul and enterprise businesses and will be driven in part by what Windstream termed “the significant number of contracts recently awarded to KDL.” The increased level of success-based capital spending likely will result in slight adjusted free cash flow dilution to Windstream in the near term but will significantly enhance adjusted free cash flow accretion in the long term. Absent these success-based growth investments, this transaction would be accretive to adjusted free cash flow per share in year one.
Windstream expects to achieve annual operating expense and capital expenditure synergies of approximately $25 million.
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