Rural ILEC operator Windstream (NYSE:WIN, news, filings) has signed an agreement to purchase NuVox, a privately held CLEC serving the southeast and midwest, for $643M. They will issue $183M of stock, pay $280M in cash, and assume $180M in net debt, an arrangement that will allow the deal to happen without accessing the credit markets. The deal, which will bring about 90,000 new enterprise customers to Windstream, is one I hadn't thought of specifically. However, I had heard that NuVox was on the market and reported it here about 6 months ago.
Along with the announcement came some metrics for NuVox. The CLEC apparently did $561M in revenue and $115M in OIBDA in the 12 months prior to July 1 of this year. That's actually a bit bigger than I had thought. The EV/EBITDA ratio for the deal appears to be between 5 and 6, which is probably about right for a CLEC that doesn't have much fiber of its own. Windstream expects to derive some $30M in synergies in the first year.
The new Windstream will be a hybrid of rural ILEC territories and more urban CLEC territories, but mainly centered on the southeast and lower midwest. How those different business models mesh will be something to watch. It could even become a trend, as landline losses lead some ILECs to seek greater exposure to enterprise revenues. Following the deal, consumer revenues will be less than half of Windstream's total take. I think it is possible, however, that Windstream is not done yet. Could they be aiming to take over a more substantial portion of the CLEC market in the region? itcd would seem to be a complementary target, and is probably available.
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