US ISP Windstream has agreed to acquire business-focussed telco PAETEC in a deal worth US$2.3bn.
In a statement today, Windstream said that PAETEC shareholders will receive 0.460 shares of Windstream common stock for each PAETEC share they…
US ISP Windstream has agreed to acquire business-focussed telco PAETEC in a deal worth US$2.3bn.
In a statement today, Windstream said that PAETEC shareholders will receive 0.460 shares of Windstream common stock for each PAETEC share they hold.
Windstream said that it expects to issue approximately 73m shares valued at approximately US$891m, which it based on Windstream’s stock price at the close on Friday.
Windstream also said that it would assume or refinance PAETEC’s net debt of US$1.4bn.
This would leave PAETEC shareholders owning approximately 13% of the company when the deal is completed.
As well as being a local exchange carrier, PAETEC provides telecoms services to business customers in 46 states and the district of Colombia.
It also operates seven data centres and owns approximately 36,700 route miles of fibre.
Windstream said that the acquisition will accelerate its revenue and free cash flow growth profile. It will create a nationwide network of 100,000 fibre route miles and enhance its capabilities in the strategic growth areas of data services, data centres and fibre.
Windstream said that it expects the deal to generate pre-tax operating cost synergies of US$100m annually from the third year after closing.
Windstream also revealed that it had received US$1.1bn in committed financing in connection with the acquisition. This financing would be required if Windstream refinances the debt it is assuming in the transaction.
Financial advisers for Windstream are JP Morgan and Stephens Inc. Its legal adviser is Skadden, Arps, Slate, Meagher & Flom LLP.
The financial advisers for PAETEC are BoA Merrill Lynch and Deutsche Bank. PAETEC’s legal adviser is Hogan Lovells.
The deal is still subject to regulatory approval. Windstream said it expects the deal to close in approximately six months.
Windstream also announced today that it was seeking to amend its senior secured credit agreement.
The proposed amendment has five parts. Its conditions permit the issuance of bridge loans, as well as the issuance and repayment of escrow notes. It would waive guarantee and security arrangements with regard to PAETEC and its subsidiaries. It would delete the capital expenditures covenant and waive any breach to the change of control provisions under PAETEC’s outstanding notes.
Windstream is also looking to amend its security agreement by waiving the obligation to grant security on accounts that relate to escrow notes and the proceeds of notes held in those accounts.
Windstream said that after the PAETEC acquisition had been completed, and subject to the amendment on the credit agreement, it intended to guarantee PAETEC’s outstanding 9.5% senior notes due in 2015, 8.875% notes due in 2017 and 9.875% notes due in 2018.
JP Morgan Chase is serving as the administrative agent.
