Another M&A rumor has come true. This morning Windstream and EarthLink followed through on their talks and announced plans to merge their businesses, seeking safety in scale and synergies.
The deal is an all-stock transaction valued at $1.1B including debt. EarthLink shareholders will get 0.818 shares of Windstream stock for each EarthLink share they own. They will own 49% of the combined company, and Windstream shareholders the other 51%.
The two companies expect annual opex and capex synergies of above $125M. They expect to realize $50M of that in the first year, another $50M the following year, and $25M in the third year. And they also expect to make use of EarthLink's NOLs, for which they give a net present value of $95M.
In all, the combined entity will have 145,000 route miles of fiber, as EarthLink's northeastern and southeastern fiber networks add each and depth to Windstream's footprint in those regions. EarthLink also brings a fairly substantial national CLEC presence to the table, with reach out on the west coast that will help Winstream with its ambitions there.
Windstream CEO Tony Thomas and CFO Bob Gunderman will keep their posts, but key EarthLink management members will be brought in as well three of the company's directors. The transaction is expected to close in the first half of 2017.
All in all, I'm not at all surprised by this deal. EarthLink has needed a home for some years now, and Windstream has been looking for a reasonably priced way to expand via M&A. I rather doubt it is their endgame though. Windstream has been lighting dark fiber to the west coast lately, and I think they are still on the prowl for further M&A with assets out there, perhaps of the metro variety.