UPDATE: Windstream To Buy NuVox; Rural Telco M&A Continues
November 03 2009 - 10:47AM
Dow Jones News
Windstream Corp. (WIN) said Tuesday it agreed to acquire NuVox
Inc. in a deal valued at $643 million, another illustration of the
consolidation in the rural telecommunications industry.
Since May, Windstream has scooped up three smaller rural telcos
in deals with a combined value of more than $1.1 billion. For
privately held NuVox, Windstream will pay $280 million in cash,
issue $183 million in stock and assume $180 million in debt. The
company plans to use its existing cash and tap its revolving credit
line to fund the deal.
Windstream and other rural telcos are scrambling to buy up each
other to boost size and pass their sizeable capital expenditures
across a wider base of customers and gain purchasing power when
buying telco gear. The telcos continue to face pressure as cable
providers poach customers with their own rival phone services,
while other consumers cancel their lines to go solely with the
cellphones. As such, Windstream Chief Executive Jeff Gardner told
Dow Jones Newswires he expects consolidtion to continue in the
industry.
Tuesday's deal for NuVox also brings a sizeable business
presence for Windstream.
"We've been talking about focusing on the business and broadband
space," Gardner said. "After the deal, over 50% of our mix will be
in business and broadband. That goes a long way towards our
strategy."
The deal, which is expected to close in the first half of next
year, is expected to save $30 million in annual operating expenses
and capital expenditures, the company said. It is expected to add
free cash flow in the first full year of combined operation, as
well as lower the company's dividend payout ratio. The boards of
both companies have approved the deal.
NuVox brings to the table operations in 16 states and roughly
90,000 business customers. Windstream operates in 16 states and
boasts 3 million access lines.
In May, Windstream entered into an agreement to buy D&E
Communications Inc. (DECC) for $159 million in cash and stock, in
addition to absorbing $171 million in debt. In September, the
company agreed to buy Lexcom Inc. (LXCM) for $141 million in
cash.
Despite the number of pending deals, Gardner said he wasn't
concerned about any integration hiccups.
"This team has done a lot of deals," he said. "We've got a great
history." -
Windstream shares were down 0.8% to $9.71 early Tuesday.
Windstream isn't the only telco in the M&A game. Frontier
Communications Corp. (FTR), is in the middle of acquiring a swath
non-essential wireline assets from Verizon Communications Inc.
(VZ).
Earlier Tuesday, Frontier reported third-quarter net income of
$52.2 million, or 17 cents a share, up from a year-earlier profit
of $47 million, or 15 cents a share. Results included a one-cent
charge related to acquisition costs.
Revenue, however, fell 6% to $526.8 million on continued access
line declines.
Wall Street, on average, estimated earnings of 13 cents a share
on $530 million in revenue.
"Despite a slight margin improvement, overall, results were
generally disappointing," said J.P. Morgan analyst Mike
McCormack.
There remains some concern over whether the telcos will be able
to handle the added debt related to these deals after Fairpoint
Communications Inc. (FRCMQ) filed for bankruptcy protection. The
company was saddled with overwhelming debt after buying Verizon's
New England wireline assets early last year.
Gardner, however, said the company's debt ratio actually
improves after the NuVox deal.
"We're in a great shape from a balance sheet perspective," he
said.
-By Roger Cheng, Dow Jones Newswires; 212-416-2153;
roger.cheng@dowjones.com
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