Windstream’s PAETEC Bid Wasn’t the Highest

September 1st, 2011 by · 16 Comments

As several readers have commented, the S-4 filing for Windstream (NYSE:WIN, news, filings) purchase of PAETEC (news, filings) is out, and it makes for some interesting reading. There was indeed another suitor, one whose offer started at $6 per share and rose as high as $6.80. But they came later to the process and without funding already in hand to refinance PAETEC’s debt load, and in the end were unable to derail Windstream’s bid – which was also raised although obviously it didn’t reach the same heights.

Based on the data in the filing, it does seem certain that ‘Company A’ was Earthlink (NASDAQ:ELNK, news, filings). That would have been a blockbuster deal, but not all that surprising. The two large CLECs that Earthlink bought in the last year (Deltacom, One Communications) were also frequently noted as potential PAETEC targets, and it is common knowledge that Earthlink is still on the prowl. They were ready to pay well, as a price of $6.80 per share would have been a multiple more in the range I might have expected.

There was another potential suitor cited in the filing, ‘Company B’, which was not in a position to make an immediate bid. I can’t think who that would be other than Level 3, which is still busy closing the Global Crossing deal and would have wanted to wait a quarter or two.  I rather doubt they would have actually done the deal even then though.

Given that Earthlink is obviously still hungry and willing to make a deal as large as PAETEC would have been, I think we will see them show up again bidding for one of the other substantial CLEC assets out there:  Broadview, Integra, TelePacific, etc.

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Categories: CLEC · Mergers and Acquisitions

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16 Comments So Far

  • WutWut says:

    Sheesh, why didn’t you just cut and paste the response from yesterday.

  • Mr. Jones says:

    Rob –

    I agree with your thinking. I do want to note, however, you left off two potentially important additional possibilities.

    The first is its possible and of course I speculate the second suitor interested in Paetec was quite possibly XO. If you think about the tremendous synergies from that type of combination it really does make an awful lot of sense since cost synergies for personnel, network, suppliers, etc could be achieved while driving tremendous value long term and creating a compelling competitor that customers could select. We all know if this is true the reason they were not in a position to actively pursue is they were tied up in the ACF merger/private activity. Of course this means that Icahn himself would have to believe in XO and want to do something with XO more so than just capture the long sought after NOL’s.

    The second possibility above is in addition to the above mentioned targets Earthlink could benefit significantly from exploring an acquisition that will help drive greater capability of their network while decreasing dependency on external suppliers west of the Chicago/St. Louis/Dallas/Ausit/etc ( As can be seen Earthlink has a major ownership gap from above mentioned locations and needs a transaction to continue and remain competitive. Again while it may be more plausible that Integra and or Telepacific are being targeted and _may_ be open to acquisition discussions I believe acquiring XO is more on size and scale of Paetec and could prove more valuable than the others combined.

    I should note I have no idea what the Earthlink team will do but if i were them i’d likely take an aggressive run at XO prior to any other asset. At some point Icahn may be inclined to say “ok” since it appears he has had the last laugh with respect to the NOL’s.

    • en_ron_hubbard says:

      Earthlink has already taken two runs at XO– both rejected by Icahn as untimely. If they wait a year or so they will likely get it– this is not the first time they’ve been “Company A”.

      No way XO was a bidder for Paetec (Company B) given the pendency of the Icahn purchase of the minority shareholders and the litigation that was ongoing.

      • Mr. Jones says:

        I agree that Earthlink has likely tried previously though the actual number of prior attempts is hard to say – do you count the times a casual discussion like “hey I’d like to buy your company” or “if your interested I am interested” as actual attempts or casual conversation? I say probative yes but not definitive.

        Say what you may about XO but I have it solid sources a call was made to BOD of Paetec that XO was interested to see if they could get a reaction and stop Windstream. I suspect the prior times of Carl Icahn ignoring Arunis’ attempts to either buy XO or have XO acquire Paetec b/c they would never meet their debt obligations proved fatal in how Arunis influenced the board who wanted out.

        • en_ron_hubbard says:

          Mr Jones,

          I am only counting the number of times it was described in documents disclosed in the litigation discovery between Icahn and the minority shareholders– once in 2008 and once in early 2011 after Icahn made his most recent offer.

          I don’t think there is any way that Icahn makes an inquiry about buying PAET while that litigation was underway. Hell, he doesn’t even want to own XO nevermind coming up with another $2.3 billion to increase his exposure to telecom. All he ever wanted was the NOL. Plus the S4 described the inquiry as coming from the CEO of “Company B” and XO doesn’t have a CEO!

          • Mr. Jones says:

            Ok fair enough on the point about the CEO except XO has three!!!! LOL. I agree it might not be smart to do during litigation but it seems to me Carl Icahn doesn’t shy away from tough legal battles ….. So I still think it’s possible.

  • elinker says:

    ELINK is on buying spree … CEO is openly discussing with employees this initiative…..they will never be able to integrate the CH1, CTC, Conversant mess so it is just a game of make the rich richer. Customers and employees are never considered…..

    • anonymously says:

      Well i must say Integra is building out there fiber like crazy.
      Something is happening for sure. It’s just a matter of time before a buyer comes to the table with an offer.

    • Mr. Poppers says:

      For some folks like Carl Icahn it’s not about employees but value creation for himself (whereas shareholders for public companies it’s usually value creation driving roi). The good leaders, however, recognize that to create value requires engaged employees who are aligned to and have bought into the growth strategy.

      I suspect the CEO isn’t new to creating strategy for value creation culminating in a transaction – look at his role in frontier/GC acuisitions, mpower/telepacific acuisitions activity, etc. It appears he has taken a company called earthlink from a dial up ISP provider and extended it’s life well beyond a normal dialup ISP life expectancy saving some jobs along the way and now is transforming it again by acquiring assets and integrating those assets to create a compelling amalgamation of assets. I’d say that is pretty impressive …… And to think he might do more.

      In the end employees do have a choice … They can always go some place else to work granted there are different issues with that ….. So I will ask you “what about the employees?” earthlink seems to be taking care of as many as it can IMO.

  • One_Comm_Guy says:

    @Mr. Poppers did you mean “I suspect the Earthlink CEO” above? assume so ….. if true i don’t necessarily agree. No one knows where the recent acquisitions end up … one thing for sure it won’t be good presumably post integration for a number of folks.

  • Mr. Poppers says:

    @Onecommguy – yes I meant CEO of elnk.

  • Anonymous says:

    I wonder if Company “B” wasn’t CTL. They are busy integrating Qwest and Savvis and might not have wanted to undertake another merger in 2011. The fiber assets from the CTL Lightcore division has a lot of Patec IRU’s. It would make sense to try and secure more fiber depth along those routes plus expand the Qwest IXC reach in the MI, OH, NY , PA, DC and VA areas that Intellifiber had.

    There is a lot of focus on low latency routes among all the IXC out there and these regional providers can offer short cut routes between select locations on the traditional long haul routes.

  • elinker says:

    other than spending other’s money, which is easy, the ELink ceo has not really built anything successful….

  • anon says:

    once you are done combining several clec’s, then what? is there a single example of a larger, rolled-up clec that works? one could argue that the few clec and similar carriers that return on capital (TWTC, Above) are the opposite — organic builders. arunis is a genius for dumping mcleod which went bk a couple of times already. please someone tell me what i am missing (include roic thesis)

    • en_ron_hubbard says:

      What do you have after combining several CLECs? — you have LVLT and a long haul network. It seems to work although I guess the jury is still out.

  • Anon says:

    Not at all — Level3 is a data (IP/MPLS) network who built their core network. They dont feature small re-sold Bell circuitry. And, as you suggest, L3 is no poster child for good returns on capital, in any event.

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