Windstream Holdings, Inc. (NASDAQ: WIN) says it has reached agreement to acquire EarthLink Holdings Corp. (NASDAQ: ELNK) (and its debt) for approximately $1.1 billion in stock. The combined company, which will retain Windstream's name, will operate a national fiber-optic network footprint of approximately 145,000 fiber route miles, focused on delivering network connectivity, managed services, voice, internet, and other value-added services primarily to business customers.
The deal is expected to close in the first half of 2017.
EarthLink shareholders will receive 0.818 shares of Windstream common stock for each EarthLink share they hold. The exchange ratio represents a 13% premium to the average exchange ratio of 0.721x over the month ended November 3, 2016, the most recent unaffected trading day. Windstream expects to issue approximately 93 million shares of stock valued at approximately $673 million, based on the company's closing stock price on November 4, 2016, to complete the deal. Upon closing, Windstream shareholders will own approximately 51% of the combined company.
Earthlink has evolved from its start as an internet service provider to develop a business services portfolio that includes cloud and hybrid networking, security and compliance, and unified communications (see, for example, "EarthLink offers cloud network connections with Cloud Express"). The company operates a nationwide fiber network that spans more than 29,000 fiber route miles, with 90 metro fiber rings. Windstream cited Earthlink's launch of software-defined WAN services as part of the company's appeal (see "EarthLink offers SD-WAN").
"The combination with EarthLink further advances Windstream's strategy by creating a stronger, more competitive business to serve our customers while increasing free cash flow and reducing leverage," said Tony Thomas, president and chief executive officer at Windstream. "With this transaction, we are combining two highly complementary organizations with closely aligned operating strategies and business unit structures. We look forward to working with the talented EarthLink team to create significant benefits and drive value for all of our stakeholders."
Windstream also has identified more than $125 million in annual operating and capital expense synergies that it expects to fully realize within 36 months of closing. The company says it should achieve approximately $50 million of these synergies within 12 months of closing, with an incremental $50 million expected within 24 months. The remaining $25 million are expected to be realized within 36 months.
Thomas will serve as president and CEO of the new Windstream, with Bob Gunderman serving as chief financial officer. Personnel Windstream identified only as "key EarthLink management members" are expected to join the combined company as well. Three of EarthLink's existing directors will join the current Windstream board of directors, bringing the total number of directors of the combined company's board to 12.
The combined company will be headquartered in Little Rock, AR.
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