Ark.-based Windstream Corp., which sells high-speed broadband Internet, phone and digital-TV bundles to residential customers as well as products and services to small, medium and large businesses, and government agencies, inked a definitive agreement to acquire Paetec Holding Corp. in a buyout valued at approximately $2.3 billion.

Paetec is a competitive local exchange carrier (CLEC) primarily serving business customers in 46 states and the District of Columbia. The carrier operates seven U.S. data centers, and it owns approximately 36,700 route miles of fiber in portions of 39 states and D.C.

The prospective buyer says 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 last 12 months ended March 31, 2011. Business and broadband revenues would have comprised approximately 70 percent of total revenue.

The new company will serve business customers in 46 states and the District of Columbia and will maintain approximately 100,000 fiber route miles across the country. Windstream also will be able to offer data center services across the United States and have improved capability to serve multi-location business customers.

“This transaction significantly advances our strategy to drive top-line revenue growth by expanding our focus on business and broadband services,” notes Jeff Gardner, president and CEO at 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.”

Adds Arunas A. Chesonis, chairman and CEO at Paetec, “Our combination now creates a new Fortune 500 company with the financial strength and scale to compete and win against any other provider in the industry. I’m confident that this transaction will deliver substantial long-term value for our customers, employees, and shareholders.”

Terms Of The Deal

Paetec shareholders will receive 0.460 shares of Windstream common stock for each Paetec share owned under the terms of the agreement ,which was approved by both boards. 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.

Windstream will assume or refinance Paetec’s net debt of approximately $1.4 billion at the time of closing, at which time Paetec stockholders are expected to own approximately 13 percent of the combined company. Windstream has received $1.1 billion in committed financing in connection with the acquisition, which financing would be required if Windstream refinances the assumed debt.

The transaction is expected to close within six months, subject to all the obligatory regulatory approvals.

The Daily


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