Local-phone company Windstream Corp. has agreed to buy Paetec Holding Corp., which provides telecommunications services to businesses, for about $891 million in stock, the companies said Monday.
Little Rock, Ark.-based Windstream says the addition of Paetec Holding Corp. will expand its focus on business and broadband services. Windstream has 3 million phone lines in 29 states, mostly in rural areas, but traditional phone service is a shrinking business.
Fairport, N.Y.-based Paetec has 5,000 employees, of which about 875 are in the Rochester, N.Y., area.
Under the terms of the deal, Paetec shareholders will get 0.460 shares of Windstream common stock for each of their Paetec shares. At Friday's closing price of $12.21 for Windstream shares, the deal valued Paetec shares at $5.62, a 27 percent premium to the closing price of Paetec shares at $4.42.
In midday trading Monday, Paetec shares rose 88 cents, or 19.9 percent, to $5.30. Windstream shares fell 7 cents to $12.14.
Paetec had $1.6 billion in revenue last year. It has posted losses for the last three years and for the first quarter of this year. Windstream said it will be able to reduce its taxes by about $250 million by claiming Paetec's losses.
Windstream also will assume or refinance about $1.4 billion in Paetec debt.
With the deal, 70 percent of Windstream's revenues will come from business services and broadband, it said. The combined company will have $6.1 billion in annual revenue, and Paetec shareholders would own 13 percent of it.
The deal has been approved by the boards of both companies and is expected to close in within six months.
But analyst David Dixon at FBR Capital Markets said he doesn't rule out the possibility of a competing bid from either long-haul data carrier Level 3 Communications Inc. or Internet service provider EarthLink Inc.