Tuesday, rural telecommunications provider Windstream Corp. (WIN) announced that it signed a definitive agreement to acquire regional wireline telecoms provider Iowa Telecommunications Services, Inc. (IWA) for $1.1 billion in a cash and stock. Shares of Iowa Telecoms have climbed more than 24% following the news.
Iowa Telecom provides communication services in Iowa and Minnesota through 256 thousand access lines, and has 95 thousand high-speed Internet customers and about 26 thousand digital TV customers.
According to the definitive agreement, shareholders of Iowa Telecommunications would receive 0.804 shares of Windstream stock and $7.90 in cash for each Iowa Telecommunications share. Little Rock, Arkansas-based Windstream said it expects to issue 26.5 million shares, which is valued at $269 million based on the closing price on November 23, and pay $261 million in cash as part of the transaction.
In addition to the issue of stock, Windstream would also repay Iowa Telecommunications' estimated net debt of $598 million. At the end of the third quarter, Iowa Telecom had total assets of $923.15 million, with cash and cash equivalents of $12.09 million, while total liabilities were $742.21 million, of which $91.03 million represented current liabilities.
Windstream said it is planning to finance the cash portion of the transaction and the repayment of Iowa Telecom's outstanding debt with the proceeds from a debt financing or additional bank borrowings. At the end of the third quarter, Windstream's total assets were $7.77 billion, including $678.6 million of current assets and $290 million in cash and cash equivalents.
Windstream expects the acquisition to be accretive to free cash flow in the first year following the closing after expected annual synergies of $35 million in operating expenses and capital-expenditure savings, and excluding integration charges. The transaction also includes tax assets with an estimated net present value of $130 million.
The transaction is expected to close in mid-2010, subject to certain conditions, including necessary approvals from federal and state regulators and Iowa Telecom shareholders, Windstream noted.
Commenting on the acquisition, Jeff Gardner, chief executive officer of Windstream, said, "These are well-run, profitable properties in very rural service areas that expand our presence in the Upper Midwest and grow our free cash flow per share."
Alan Wells, chief executive officer of Iowa Telecom, said, "Windstream is a leader in our industry, and Jeff Gardner and his team have done an outstanding job of profitably growing their business in challenging times. Windstream shares our commitment to both customer service and shareholder value, and we're very pleased that our company will be joining the Windstream organization."
For the recent quarter, Windstream reported a 24% drop in profit on lower revenues and one-time costs. The company's third-quarter net income decreased to $80 million, or $0.18 per share, from $105.9 million, or $0.24 per share, a year ago. Quarterly revenues declined 8% to $734.3 million.
For the third quarter, Iowa Telecom's net income attributable to the company dropped to $4.6 million or $0.13 per share from $5.72 million or $0.17 per share in the year-earlier quarter. Quarterly revenues rose 8.5% to $68.3 million.
Further, Iowa Telecom said its Chairman and Chief Executive Officer Alan Wells will join Windstream Board as a director.
Iowa Telecom's 15 Advanced Wireless Service licenses and three 700 MHz band licenses are also included in the acquisition agreement. Advanced Wireless Service is a radio spectrum that allows cable operators and satellite operators to add wireless voice and data services to existing bundles of high-speed Internet access. A spectrum auction for Advanced Wireless Service conducted by the Federal Communications Commission in August witnessed aggressive bidding from players such as T-Mobile (DT), Verizon Communications (VZ), AT &T (T), DirecTV (DTV), EchoStar (SATS), and Sprint Nextel (S).
Stephens Inc., Goldman, Sachs & Co., and BofA Merrill Lynch are acting as financial advisers to Windstream in the transaction while Iowa Telecom has retained J.P. Morgan Securities Inc.
WIN is losing $0.20 or 1.97%, and is trading at $9.94 on a volume of 1.17 million shares on the New York Stock Exchange.
IWA is gaining $3.14 or 24.74%, and is trading at $15.83 on a volume of 5.40 million shares on the New York Stock Exchange.
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