In a deal that came as a complete shock to me, Windstream (NYSE:WIN, news, filings) has agreed to purchase PAETEC (news, filings) in a deal worth $2.3B. Windstream will assume or refinance PAETEC’s net debt of $1.4B and PAETEC shareholders will receive 0.460 shares of Windstream common stock for each PAETEC share they own. That appears to peg the deal at about $5.61 per share based on Friday’s close, and if one guesses PAETEC’s current run-rate EBITDA at about $380M, the EV/EBITDA multiple of the deal would be in the neighborhood of 6. Or, it could be Monday and my calculator hasn’t woken up yet, we’ll see.
When complete, Windstream will have become a national CLEC. It had been moving in this direction for years with the purchases of Nuvox and KDL, but until now those revenues had been relatively small next to the ILEC business. PAETEC, however, has revenues now of about $2B annually, following the purchases of Cavalier late last year and XETA this spring. And if you go further back, there are a plethora more deals that have brought quite a roll up of CLEC-type assets into Windstream’s camp. Add all of them up and the CLEC business will contribute as much as 70% of Windstream’s $6B in run-rate annual revenue. The company’s enterprise business overall will clearly be their primary focus from here on out, and they obviously haven’t run into any big problems being both an ILEC and a CLEC thus far.
The fiber assets are quite complimentary, as the KDL assets fit right in the middle of the Intellifiber assets on the east coast and in the rust belt and plus the former McLeodUSA fiber further out in the Midwest, while reaching southward toward the Gulf Coast. I had not thought PAETEC was ready to sell out. It seemed far more likely that they would eventually make a move on some western fiber. However, in combination with Windstream they do appear to fit quite well.
Windstream is also likely looking at PAETEC’s early move on the cloud and its datacenter footprint, which would seem to fit well with the Hosted Solutions acquisition of last fall. Windstream expects to derive $100M in annual operating cost synergies as well as tax benefits derived presumably from NOLs with a net present value of $250M.
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Categories: CLEC · ILECs, PTTs · Mergers and Acquisitions
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What about Paetec’s energy division?
It comes with the deal.
does windstream have an energy division?
Now they do 🙂
Honestly, I think Windstream will probably sell a few of the more far flung bits of PAETEC’s empire, e.g. the energy biz and the software development.
so does all the debt
and it’s a lot, right?
Can’t believe they would sell. They knocked down the building in Rochester just recently to begin construction on new HQ. Wonder what led to this route.
I’m still surprised as well, I figured Chesonis still had something left to prove.
That they sold may be a surprise but that they sold at this sort of price is even more bemusing. The S4 will be interesting reading– was this a process or simply a negotiated deal?
could it have been hostile?
That would have been public – as en_ron says, the S4 should make for interesting reading.
When will S4 be available?
Generally the S4 is 30 days after the announcement.
Never mind that, he’s always been very loyal to his people. His employees have stayed with the company for many years, moving up in the ranks. I hear it’s a great company to work for.
its not. it never was, although in the chain of successive buy outs it turns out the grass was always greener int he past.
it was a pretty crappy place, and chesonis was an incredibly arrogant egotist.
Yeah…those loyal employees who helped build the company just got sucker punched. They are left hanging without golden parachutes like the senior team.
unknown is right. so many employees have stuck with paetec for a long time. all of those years were underpaid and overworked. now when the senior leader team (of 20+) is ready to cash out (after some very nice stock grants prior to this deal being announced), they will leave all ranks (from level one employees right on up to the VP level) without anything but the malaise of wondering whether or not you will even have a job once the deal closes.
anon is correct. spoke with many long term employees that are pissed.
Someone please post when S4 is available.
Lawyers Pounced already on $5.62 share price offer: http://www.lawyerviews.com/PAETEC-holding-merger-lawsuit.html
Does anyone think EJ Butler left because of this coming down the pipe?
S-4 just released.
http://www.sec.gov/Archives/edgar/data/1282266/000119312511236696/ds4.htm
Cavalier employees were suckerd into the paetec hype. Believing they still had jobs and then let go in small enough numbers that it didnt generate media attention to “LAY OFFS!”
PAET was a wonderful company to work for. I sent several friends to their sales team after getting out of telecom sales. Aruni used to rant about he was looking for tuck in purchases like quagga and others. He would hint at a super buy of a company that would add a billion in revenue. We speculated XO or an Integra. No dice. I remember another goal was to achieve 5 billion in revenue. I believed the guy. I feel for the employees as integration rarely are smooth. Thanks for the great website.