Windstream buying EarthLink for $1.1 billion

Windstream Holdings has agreed to buy fellow U.S. telecommunications company EarthLink Holdings in a deal valued at about $1.1 billion, including debt, in a bid to cut costs and better compete with rivals.

The merger, if completed, would come after larger peer CenturyLink agreed to buy Level 3 Communications in a deal announced a week ago that was valued at about $24 billion. The competitive enterprise communications space has been consolidating rapidly this year.

Little Rock, Ark.-based Windstream, which has operations in Hiawatha, provides telephone and internet services to consumers in rural markets. It acquired Iowa Telecom of Newton in 2009 for $1.1 billion in stock and cash and PAETEC Holding Corp. in 2011 for $2.3 billion in a stock transaction.

Atlanta-based EarthLink, which was an internet pioneer in dial-up service in the 1990s, have seen revenue fall for the past three years.

The deal is expected to generate over $125 million in cost savings within three years.

'The combination with EarthLink further advances Windstream's strategy by creating a stronger, more competitive business to serve our customers while increasing free cash flow and reducing leverage,” said Tony Thomas, Windstream's chief executive.

The deal values EarthLink at about $645.2 million, or $5.92 per share, based on Windstream's Friday closing price, according to Reuters' calculations. EarthLink had about $436 million of debt, while Windstream had $4.8 billion in long-term debt as of Sept. 30.

'The transaction is beneficial to Windstream's credit profile, as the transaction reduces Windstream's leverage modestly,” Fitch analysts said in a research note.

EarthLink shareholders will receive 0.818 Windstream shares for each share they own. Windstream shareholders will own about 51 percent of the combined company when the deal closes, while EarthLink shareholders will own about 49 percent.