Windstream will acquire Paetec Holding Corp. in a deal worth about $2.3 billion, the companies announced Monday.
According to Windstream, the acquisition -- one of the most dramatic yet in the rapidly consolidating telecom service provider space -- significantly expands Windstream's service provider footprint and catalyzes top-line revenue growth.
"Both Paetec and Windstream are built on a customer and employee-focused culture," said Arunas A. Chesonis, chairman and CEO of Paetec, in a statement. "Together, with far denser network assets, an expansive fiber infrastructure, and larger data center footprint, I believe our brightest days are ahead."
Added Chesonis: "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."
Under the terms of the transaction, Paetec shareholders will receive 0.46 shares of Windstream stock for each share of Paetec stock they own, or about $891 million in stock based on Windstream's July 29 closing price.
The companies expect the transaction to close in six months. Little Rock, Ark.-based Windstream also confirmed it will assume or refinance $1.4 billion of Paetec's debt following the closing of the deal. The company expects to incur costs of about $50 million in operating expenses related to the closing in the first year following, and about $55 million over three years. Windstream added that it has receive $1.1 billion in financing to assist the acquisition.
"The transaction significantly advances our strategy to drive top-line revenue growth by expanding our focus on business and broadband services," said Jeff Gardner, Windstream's president and CEO, in a statement. 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."
Paetec, based in Fairport, N.Y., has about 5,000 employees. The acquisition also adds a fiber network of about 37,600 miles to Windstream's assets. Windstream will now have a about 100,000 fiber route miles overall across the country, be able to offer data center services all over the U.S., and serve customers in 46 states.
Paetec has itself been an active player in the ongoing telecom service provider M&A wave. In the last year, the company bought two Avaya-heavy VARs: Quagga, in June 2010, and Xeta Technologies, in February 2011.
The rapidly converging telecom service provider segment has been ripe for major M&A moves in recent years, from blockbuster deals like Verizon buying Terremark to CenturyLink acquiring first Qwest, then Savvis. Smaller deals have also been rampant; hosted UC player Alteva, for example, was acquired for $17 million last month by Warwick Valley Telephone Company.