The Latest Rumor: Windstream, EarthLink Talking Merger

November 4th, 2016 by · 16 Comments

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.

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Categories: CLEC · Fiber Networks · ILECs, PTTs · Mergers and Acquisitions

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16 Comments So Far

  • Anonymous says:

    This is one merger Im not totally against. Both companies need help and I think this will strengthen their current market positions. I still think Windstream really needs to figure out how to get themselves a nationwide fiber footprint but this can probably shore things up until that happens and make a larger acquition possible.

  • Telecom1oh1 says:

    How exciting! This will be my first Telecom Special Olympics and can’t wait to watch this go down!!

  • Thanks for the heads up Joe. I love finding out about this shit on 3rd party websites. Time to update the resume.

  • NoSecretsInTheChannel says:

    I would look for another service provider to swoop in and outbid Windstream.

  • Ray Finkel says:

    Not suprised by this at all. They had 5 years to make it work and it failed. They have a low stock price and have been paying down debt. That makes them ripe for M&A. My friends still employed there found out through a 3rd party like others have started. They have a 3rd quarter call next week and I am sure this will be the topic of conversation. Every January they have layoffs, in 2017 this will be accelerated.

  • Joe Eazor says:

    I am going to need some help lifting this bag with my golden parachute inside…..

  • Rolla Huff says:

    Hey Joe, give me a call when you’re ready, I’ll give Howard Janzen a call and we’ll come over and show you how it’s done!

  • Joe, Take the money and run. The board and my self stuffed our pockets with $ millions $ before we walked out the door.



  • Perplexed says:

    There is only one reason Windstream would make this acquisition. Yes for as bad as ELNK is in many areas of its business starting with the CEO, Product, Sales, IT, etc. there is one viable reason … only one in my opinion but it would have to be a great price for it to be worthwhile.

    The reason it could be valuable and viable is Paetec purchased a good portion of its fiber network from the old Integrated Fiber Network which was later acquired/became Delta Comm which ELNK purchased under Rolla Huffs leadership. That network and acquisition was purchased primarily b/c of the IFN assets. The thought at the time was that eventually paetec or whomever purchased paetec would want to buy the network assets. Fast forward many years and Rolla’s vision might actually come to fruition.

    As i understand it from the SEC filings, speaking to former technology leaders and finance folks the IFN network generates a good majority of the EBITDA ELNK produces. Selling the fiber network would generate good proceeds but then shareholders would be left with assets that are essentially in a state of decline (ISP, Sall Business, etc). So Perhaps Windstream picks up the totality of assets but i can assure you they shut everthing except the fiber network assets and corresponding sales down in two seconds flat.

    I don’t normally comment negatively on individuals but my opinion on the CEO Joe Eazors performance is that he has failed to grow value in the business through organic means and obviously minus the small acquisition which was around consulting he failed to fully integrate the cloud business resulting in loss of value for shareholdders. Moreover he’s had significant turnover at his top level, hired poor leaders, and laid off a sizeable amount of staff resulting in a business that has very little momentum and even less sales velocity. Its clear when reading the filings on the business the financials have been tuned by cutting and saving as opposed to growing and investing.

    If i were a ELNK employee i would look/explore for new employment b/c you won’t be employed by Windstream for very long. Only the fat ones at the top will land softly.

    • Anonymous says:

      Perplexed, i join you in the world of “huh?”. You are correct about this deal being mostly about the elimination of leased costs, on both sides. WIN needs to be careful in DD to understand how much fiber is IRU’ed from Southern, CLINK, and others, and the life left on these fibers.

      • 'lil help please says:

        How does any savings from leased costs come into play, given CSAL position in WIN network? Is CSAL taking a hit on this transaction? Who actually owns the cable?

        • Anonymous says:

          WIN buys/leases lit services, e.g. PTPs, Waves, Ethernet, MPLS, etc from ELINK, and vice versa. When the merger occurs, those marked-up leased costs are eliminated. CSAL owns the fiber but WIN lights the fiber with their own optical equipment, in order to sell lit services. As long as WIN continues to make the lease payments to CSAL, then there should be no hit to CSAL. If this merger brings the benefits as proposed, then it strengthens WIN’s ability to continue to make their lease payments and to pay out a dividend.

          • Anonymous says:

            Forgot to mention that there will also be leased cost savings from circuits/services purchased from other providers where they now have their own assets.

  • Grant Lewis says:

    It was only a matter of time. Clearly not everyone feels this is a good idea nor maximizing value for ELNK shareholders.

    To be honest, i am not sure what else could be sold for greater than what they received already.

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