Windstream forms holding company

After hinting that it was considering the move, Windstream Corp. announced Friday it had formed Windstream Holdings Inc., now the parent company of Windstream and its subsidiaries.

The creation of a holding company will give Windstream Corp. more financial flexibility and put the Little Rock company in a better position for future acquisitions, analysts said.

Windstream Holdings will continue to be a public company and will trade on the Nasdaq stock exchange under the current Windstream symbol “WIN” beginning Tuesday.

Windstream’s current board of directors and executives will oversee both companies.

The creation of the holding company will not affect shareholders or result in any personnel changes, said Tony Thomas, the company’s chief financial officer.

“It’s really more of a legal structure and gives us more flexibility with future opportunities,” he said.

Shares of Windstream saw little movement Friday after the company’s morning announcement. The company’s shares gained 6 cents to close at $8.07 on the Nasdaq stock exchange.

The telecommunications company said earlier this month it was considering forming a holding company because it would strengthen Windstream’s credit profile.

“The reason why we’re evaluating [a holding company], Windstream has been very acquisitive in the past,and right now, we kind of have a clear idea, we’re focused on integrating Paetec,” Thomas said during the company’s second quarter conference call Aug. 8.

Windstream acquired Paetec Holding Corp., a telecommunications company, in 2011 for $2.3 billion to enhance its business division and expand its fiber-optic network.

Since Windstream separated from Alltel and merged with Valor Communications Group in 2006, the company has bought eight companies for a total price of $6.3 billion.

Paetec was Windstream’s biggest purchase, but the move has met with mixed results for Windstream, said Donna Jaegers, an analyst with D.A. Davidson and Co.

“I think they were hoping they would get more earnings growth out of Paetec,” she said.

“On the Paetec acquisition it’s been mixed. They have been gaining larger business customers but losing smaller customers.”

Despite an increase in revenue, Windstream’s profit margins have fallen as the company has acquired businesses to expand its services.

And as Windstream’s net income has declined, investors have worried about its ability to pay its annual $1 dividend, causing its stock value to fall to lows not seen in since 2009.

Analysts said the creation of the new holding company will not affect Windstream’s dividend.

“We think they can sustain the dividend,” said Jaegers, who owns some of Windstream’s stock. “The move was motivated by the fact that their stock price continues to show that a whole bunch of people don’t have confidence with their dividend.”

Barry McCarver, an analyst with Stephens Inc., said the creation of the new company will make it easier for Windstream to make acquisitions and easier to refinance its debt.

Jaegers agreed. “It gives them more flexibility on their debt structure to actually float more debt,” she said. “It could open further potential for more acquisitions.”

Business, Pages 29 on 08/31/2013

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