It's been quite a week, and it may not be over yet. Reuters has a report out this morning that Windstream and EarthLink are talking about a transaction, citing people close to the discussions.
Since its heyday as a dot-com dialup ISP, EarthLink has gone through a series of rebuilding years in which it tried to leverage its legacy consumer business's cash flow to get into new businesses. Today they still generate cash off of the consumer business, but the majority of their revenue comes from network and cloud services. They own fiber network in the southeast and northeast, deriving from the Deltacom and One Communications acquisitions, respectively.
That footprint meshes pretty well with Windstream's. It would give them new depth in Florida, the Carolinas and New England, while offering synergy opportunities in the Midwest, Appalachia and deep South. While a fair amount of the fiber is IRU-based, EarthLink does own some of the southern fiber, which suggests perhaps CS&L could get involved in the deal since Windstream spun off the actual ownership of the rest of its assets to them a year and a half ago.
The customer profiles also seem pretty compatible, with a mix of wholesale and enterprise/SMB. There would probably be some culture clash between the two, but nothing Windstream hasn't seen already in its prior deals.
Does that mean I think the rumor is real? Probably, although of course whether it comes to fruition is entirely up to the details. EarthLink has been open to such a combination for a long time, and Windstream is definitely on the prowl these days as it turns its attention to furthering its fiber network and its enterprise business. I'd actually be pretty surprised if they haven't had some detailed conversations at the very least. There are synergies to be had here, and both companies seem to be thinking on a practical level these days about their own value and opportunities.
Windstream has a bit over $5B in annualized revenues, while EarthLink is just below $1B. Windstream has a $650M marketcap with a net debt of some $4.7B, while Earthlink has a similar marketcap of $570M with a net debt of just $400M or so. The rumored transaction seems to foresee a stock deal that would have Windstream shareholders own a bit more than half the combined company. Both companies report earnings on Monday.