Windstream Corp. (WIN) agreed to acquire local-exchange carrier
Paetec Holding Corp. (PAET) for about $891 million in stock in
order to expand its business and broadband services.
The telecommunications sector has been consolidating as landline
operators react to a decline in business due to customers dropping
landline service in favor of wireless phones.
Each Paetec share will be swapped for 0.460 of a Windstream
share, a deal that values Paetec at $5.62 a share, a 27% premium to
Friday's close. The stock has risen 12% over the past year and last
traded above the offer price in summer 2008.
Shares surged 22% to $5.32 premarket.
Windstream, a rural telecom company, will also assume or
refinance about $1.4 billion of Paetec's net debt when the deal
closes, currently expected to occur within six months.
Paetec shareholders will own about 13% of the combined company,
which would have had revenue of $6.1 billion for the year ended
March 31. Business and broadband services would have comprised
about 70% of that revenue.
"Our combination now creates a new Fortune 500 company with the
financial strength and scale to compete and win against any other
provider in the industry," said Paetec Chairman and Chief Executive
Arunas A. Chesonis.
Windstream said in May its first-quarter earnings fell 68% on
debt and acquisition-related charges, although the rural-telecom
company's revenue rose 21%.
Paetec reported in May its revenue rose 27%, although its loss
widened on higher amortization expenses.
Windstream shares were up 1% at $12.33 premarket and have
climbed 7.1% premarket.
-By Melodie Warner, Dow Jones Newswires; 212-416-2283; melodie.warner@dowjones.com