Windstream buying PAETEC for $2.3 billion in stock deal

PAETEC Holding Corp., with operations in Hiawatha, has agreed to be acquired by Little Rock, Ark.-based Windstream Corp. for $2.3 billion in a stock transacti0n.

The deal, announced Monday, will not affect the construction of a $5 million, 40,000-square-foot office building on North Center Point Road in Hiawatha. PAETEC employs about 460 in Hiawatha and plans to continue leasing an office at 1 Martha's Way for its National Monitoring Center, which manages 37,000 miles of fiber-optic cable for the Fairport, N.Y., company.

Windstream, which acquired Iowa Telecom of Newton in 2009 for $1.1 billion in stock and cash, plans to give PAETEC shareholders 0.460 shares of Windstream common stock for each PAETEC share owned under the terms of the sale agreement, which was approved by the boards of directors of both companies.

Windstream expects to issue about 73 million shares of stock valued at roughly $891 million, based on the company's closing stock price on July 29. , Windstream also will assume or refinance PAETEC's net debt of approximately $1.4 billion at the time of closing, which is expected to occur within six months, subject to regulatory and shareholder approvals.

The merger will create a telecommunications company with $6.1 billion in annual revenue and operations in 46 states and the District of Columbia. Windstream will maintain 100,000 fiber route miles across the country and have more than a half-dozen data centers, including PAETEC's Hiawatha facility.

The transaction is expected to generate annual pre-tax operating cost synergies of about $100 million and capital expenditure savings of approximately $10 million, which are expected to be fully realized by the third year after the completion of the merger.

PAETEC purchased McLeodUSA in September 2007 for $557 million in an all-cash transaction. PAETEC was created in 1998 by Arunas Chesonis and other veteran executives of ACC Telecom after that business was acquired by AT&T.

Chesonis, PAETEC chairman and chief executive officer, said the company's purchase by Windstream will give it the size and resources to compete effectively in the telecommunications industry.

"Our combination creates a new Fortune 500 company with the financial strength and scale to compete and win against any other provider in the industry," Chesonis said Monday in a statement. "I'm confident that this transaction will deliver substantial long-term value for our customers, employees, and shareholders."

Jeff Gardner, president and CEO of Windstream, said the merger will create a company with a nationwide network with a deep fiber footprint that will offer enhanced capabilities in strategic growth areas, including data centers, cloud computing and managed services.

"Financially, we improve our growth profile and lower the payout ratio on our dividend, offering investors a unique combination of growth and yield," Gardner said in a statement.