Windstream Continues to Target Business Markets with Paetec Purchase
Windstream agreed to acquire local-exchange carrier Paetec in a deal valued at $2.3 billion, including $1.4 billion in debt, as the company continues to expand its enterprise business. The deal, pending federal and state regulatory approvals, is expected to close in six months.
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Windstream would gain improved capability to serve multi-location business customers, CEO Jeff Gardner said Monday. The combined company will have business customers in 46 states and the District of Columbia and would add some 100,000 fiber miles across the country to Windstream’s network. The deal would also help Windstream in pursuing four key growth areas, including wireless backhaul, Ethernet, Multi-Protocol Label Switching and hosting, Gardner said. Windstream, whose key growth area on the residential side is broadband, could earn 70 percent of its revenue from business and broadband after the deal is completed, Gardner said. Paetec shareholders will own 13 percent of Windstream after the deal. The deal could need approvals from more than 20 states, a Windstream spokesman said.
Windstream’s acquisitions over the last few years range from competitive carrier NuVox to data center operator Hosted Solutions. Paetec bought competitive carrier Cavalier Telephone less than a year ago. Both companies have been busy with consolidations, said New Paradigm Resources Group analyst Ed Gubbins. Those transactions show the two were moving in the same direction -- toward cloud-centric business services, he said. Windstream would focus on completing the integration of Paetec but also the still-in-process integration of previous acquisitions by both firms, Gardner said. But Gubbins said he wouldn’t be surprised to see another deal before too long. Windstream could do more on the West Coast, he said. Gardner declined to comment on potential further expansions. The deal makes sense because it would expand Windstream’s fiber and increase its exposure to higher-growth segments like Ethernet, data centers, wireless backhaul and managed services, said Mizuho Securities analyst Michael Nelson.
Meanwhile, securities firm Faruqi & Faruqi said it’s investigating the Paetec board for potential breaches of fiduciary duties related to the deal with Windstream. The companies declined to comment.