Could Bullish PAETEC Stock Spur Bidding War?

A research note by FBR Capital Markets analyst David Dixon Thursday speculated that investors would have their eyes peeled for a better offer. That offer might come from Level 3 Communications, said Dixon, who estimated that the networking giant, hot off the heels of its acquisition of Global Crossing last week, could pay as much as $7.30 per share for PAETEC. A deal with Level 3 would make “greater strategic sense,” he said.

Shares of PAETEC closed Friday at $5.33 a share, rising higher than the value of Windstream’s pending offer. In the deal between the two companies, Little Rock, Ark.-based Windstream agreed to pay shareholders 0.46 shares for each PAETEC share, with shareholders owning 13 percent of the company when the deal is complete. But with last week’s strong showing on the NASDAQ and a solid opening on Monday, PAETEC shares are now worth more than Windstream’s offer, which Friday came out to around $5.17 per share.

And shareholders may welcome a competing offer. Shortly after the deal was announced, two separate law firms, Boston-based Kyros & Pressly LLP and San Diego-based Robbins and Umeda LLP, began looking into assertions that PAETEC stock was undervalued in the offer, and that PAETEC’s board did not obtain maximum value for its shareholders in the deal with Windstream. The firms say that many financial analysts calculate the worth of PAETEC stock at $7.00 per share.

The acquisition deal, inked on August 1st, is valued at around $891 million in stock, plus $1.4 billion in PAETEC debt that Windstream will assume or refinance, for a grand total of $2.3 billion. The deal is the latest in a string of acquisitions by Windstream as the ILEC drives to expand its national footprint as broadband and business provider.

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Shareholders are scheduled to make their final vote on the pending acquisition on October 27th.