- Builds on strategy to grow broadband and business revenues
- More than doubles existing fiber footprint, adding over 30,000 highly complementary, contiguous fiber route miles in 22 states
- Generates approximately $25 million in annual synergies
- Enhances network capabilities and expands growth opportunities in the enterprise segment
- Enhances opportunities to significantly grow transport services for wireless carriers
LITTLE ROCK, Ark. – Windstream Corp. (Nasdaq: WIN) announced today that it has entered into a definitive agreement to acquire Q-Comm Corporation (Q-Comm), a privately held regional fiber transport and competitive local exchange carrier based in Overland Park, Kan., in a transaction valued at approximately $782 million.
The transaction includes Q-Comm’s wholly owned subsidiaries Kentucky Data Link, Inc., (KDL), a fiber services provider in 22 states, and Norlight, Inc. (Norlight), a competitive local exchange services company primarily serving the Midwest. Both KDL and Norlight are based in Evansville, Ind.
Windstream expects to issue approximately 20.6 million common shares valued at $237 million based on Windstream’s closing share price on August 17 of $11.49, and pay approximately $278 million in cash consideration for outstanding equity interests in Q-Comm. Windstream also will repay estimated Q-Comm debt balances of approximately $267 million, net of cash acquired. Although Windstream expects to have sufficient liquidity in the form of cash balances and revolving credit capacity to fully finance the cash portion of the purchase price and debt repayment, it may choose to raise debt financing in the future.
“This transaction builds on Windstream’s strategy to become a next-generation telecom provider focused on broadband and enterprise customers,” said Jeff Gardner, president and CEO of Windstream. “KDL’s extensive fiber network creates savings for us as well as opportunities to grow business revenues, particularly transport services for wireless carriers.”
The transaction is structured as an acquisition of 100 percent of the stock of Q-Comm by Windstream. Prior to closing, Q-Comm will divest certain assets to its shareholders, such that the remaining businesses acquired by Windstream will consist of KDL and Norlight.
The boards of both companies have approved the transaction, which is expected to close in the fourth quarter of 2010, subject to certain conditions, including necessary approvals from federal and state regulators.
KDL provides long-haul and metropolitan fiber services to a diverse base of bandwidth intensive customers, primarily serving wireline and wireless carriers, as well as the large enterprise, government, education and medical markets. KDL’s contiguous fiber network spans nearly 30,000 fiber route miles in 22 states. KDL has approximately 400 employees.
Norlight is a competitive local exchange carrier that serves approximately 5,500 small and medium size business customers primarily in the Midwest. Norlight has approximately 200 employees.
Windstream and Q-Comm operate in highly complementary markets, and the combination of Windstream’s and Q-Comm’s capabilities in these service areas will provide significant benefits to their respective operations.
KDL has a history of consistent revenue and OIBDA (operating income before depreciation and amortization) growth with high OIBDA margins and solid returns on capital investments. Additionally, KDL’s asset base is well positioned to take advantage of attractive wireless backhaul growth opportunities, with a significant number of contracts coming up for bid over the course of the next several years.
In the 12 months ended June 30, 2010, KDL and Norlight generated $231 million in revenue and $92.8 million in OIBDA. In the three months ended June 30, 2010, KDL and Norlight generated $58.2 million in revenue and $24.5 million in OIBDA.
On a pro forma basis to include KDL and Norlight for the three months ended June 30, 2010, broadband and business revenues represented 57 percent of Windstream’s total revenues.
In order to maximize the long-term business potential and value of the acquired properties, Windstream plans to increase success-based capital expenditure investments in the near term. These investments will be concentrated in the wireless backhaul and enterprise businesses and will be driven in part by the significant number of contracts recently awarded to KDL. The increased level of success-based capital spending likely will result in slight adjusted free cash flow dilution to Windstream in the near term but will significantly enhance adjusted free cash flow accretion in the long term. Absent these success-based growth investments, this transaction would be accretive to adjusted free cash flow per share in year one.
Windstream expects to achieve annual operating expense and capital expenditure synergies of approximately $25 million.
Stephens Inc. and BofA Merrill Lynch acted as financial advisers and Bryan Cave LLP acted as legal adviser to Windstream on the transaction. RBC Daniels acted as financial adviser and Sonnenschein Nath & Rosenthal LLP acted as legal adviser to Q-Comm.
Non-GAAP Financial Measures
This press release references the non-GAAP financial measure OIBDA for KDL and Norlight a pro forma basis. A reconciliation of this measure to the most directly comparable GAAP measure is presented below:
|(Dollars in Millions) || |
3 Months Ended
12 Months Ended
|Operating income under GAAP || |
|Depreciation and amortization || |
|OIBDA || |
KDL and Norlight generated $98 million in OIBDA for the last quarter annualized (LQA), for the quarter ending June 30, 2010.
Cautionary Statement Regarding Forward-Looking Statements
Windstream claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including statements regarding the completion of the acquisition and expected benefits of the acquisition, are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based on estimates, projections, beliefs and assumptions that Windstream believes are reasonable but are not guarantees of future events and results. Actual future events and results of Windstream may differ materially from those expressed in these forward-looking statements as a result of a number of important factors. Factors that could cause actual results to differ materially from those contemplated above include, among others: receipt of required approvals of regulatory agencies; the possibility that the anticipated benefits from the acquisition cannot be fully realized or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of Q-Comm operations into Windstream will be greater than expected; the ability of the combined company to retain and hire key personnel; and those additional factors under the caption “Risk Factors” in Windstream’s Form 10-K for the year ended December 31, 2009 and in subsequent Securities and Exchange Commission filings. In addition to these factors, actual future performance, outcomes and results may differ materially because of more general factors including, among others, general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes. Windstream undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause Windstream's actual results to differ materially from those contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties that may affect Windstream's future results included in Windstream’s filings with the Securities and Exchange Commission at www.sec.gov.
Windstream Corp. (Nasdaq: WIN), headquartered in Little Rock, Ark., is an S&P 500 company with communications operations in 23 states and about $4 billion in annual revenues. Windstream provides phone, high-speed Internet and high-definition digital TV services. The company also offers a wide range of IP-based voice and data services and advanced phone systems and equipment to businesses and government agencies. For more information about Windstream, visit www.windstream.com.
About Kentucky Data Link, Inc.
KDL is a provider of long haul and metro lit fiber services to a diverse base of bandwidth intensive customers, including wireline carriers, wireless carriers, and the large enterprise, government, education and medical markets. KDL’s contiguous fiber network spans nearly 30,000 fiber route miles in 22 states. For more information about Kentucky Data Link, Inc., visit www.kdlinc.com
About Norlight, Inc.
Norlight, Inc. provides a full suite of voice, data and managed services primarily to business customers in Indiana, Kentucky, Tennessee and Wisconsin. Services offered include: local telephone service, long-distance services, digital voice services, Internet access, website design & development, web hosting, software & application development and hosting, custom-designed network solutions and fiber transport services. For more information about Norlight, Inc., visit www.norlight.com.