Windstream Holdings Inc. will merge with EarthLink Holdings Corp. in a deal valued at $1.1 billion as the companies seek to cut costs and better compete in the telecommunications industry.
Windstream will take control of EarthLink in a $673 million all-stock transaction that will also require the Little Rock company to refinance about $436 million of EarthLink's debt.
Windstream provides telephone and Internet services for consumers in rural markets. Atlanta-based EarthLink is an information technology services, network and communications firm.
News that the companies were negotiating a merger was first reported Friday by the Reuters news agency. The two companies announced the deal Monday morning before markets opened.
"We looked at how our business was operating, and we thought now would be a good time for Windstream and EarthLink to merge and create a stronger and ready company," Windstream Chief Executive Officer Tony Thomas said.
Under the terms of the deal, EarthLink shareholders will receive 0.818 Windstream shares for each EarthLink share they own. Windstream said it expects to issue about 93 million shares of stock.
Once the deal is finalized, Windstream shareholders will hold about 51 percent of the combined company, while EarthLink shareholders own about 49 percent. The deal is expected to close in the first half of 2017, pending regulatory approval.
"We are pleased to join forces with a company that shares our core values and operating philosophies, and whose strategy complements our own," said EarthLink Chief Executive Officer Joe Eazor in a news release announcing the merger.
"We've both made significant progress as evidenced by our improving financial results and strengthening balance sheets. Now is the right time for us to come together," he said.
The new combined company, which will keep the Windstream name, will have its headquarters in Little Rock. Thomas will stay on as president and chief executive officer, and three members of EarthLink's board of directors will join Windstream's board.
The companies said the merger will create a more competitive company that will have a fiber network extending 145,000 miles nationwide.
The deal will also increase Windstream's cash flow, allowing the company "greater financial flexibility for strategic network investments and debt reduction while increasing dividend coverage," the announcement said.
Windstream has struggled financially in recent years after a series of acquisitions to expand its business services, particularly in managing and hosting client data.
Since becoming chief executive officer of Windstream in 2014, Thomas has focused on strengthening the company's communications network as a way to improve profitability.
Thomas said Monday that the merger is a "demonstration" of the company's initiative to improve its fiber network.
"One of the thing that really attracted us to EarthLink was the quality of the network," he said.
The acquisition won't affect Windstream's presence in the marketplace, but it will allow the company to grow and maintain cash flow, said Barry McCarver, an analyst with Stephens Inc.
"It's a very good deal," he said. "It's a very lucrative deal for Windstream."
The companies said the merger will help them reduce costs by at least $125 million. They made no announcement about layoffs as a result of the deal. Windstream has about 12,000 employees, about 1,500 of them in Arkansas, and EarthLink has about 1,900 employees.
When asked about the potential for layoffs, Windstream spokesman David Avery said it was "premature to speculate on impact to positions."
Jay Chesshir, chief executive officer of the Little Rock Regional Chamber of Commerce, called Windstream's merger with EarthLink "promising."
Windstream considered moving its headquarters to the East Coast after an acquisition a few years ago, Chesshir said.
"The fact that this has gone forward with EarthLink -- beyond all of the business reasons why -- it's extremely promising that with this latest acquisition they've determined to maintain and grow their headquarters here in Little Rock," Chesshir said.
Windstream shares rose slightly after the merger was announced but ended the day down 1 cent at $7.23 on the Nasdaq stock exchange.
EarthLink shares, which surged almost 15 percent Friday on news that the two companies were in merger talks, tumbled Monday after the deal was confirmed. The shares fell almost 10 percent to close Monday at $5.60.
Windstream and EarthLink released their third-quarter financial results on Monday.
Windstream reported a loss of $66.2 million, or 72 cents per share, for the quarter ending Sept. 30, compared with a loss of $7.2 million, or 8 cents per share, a year ago. Revenue fell to $1.3 billion from $1.5 billion a year ago.
EarthLink reported a profit of $230,000, reversing a loss of $10.5 million in the same quarter in 2015. Revenue was $235 million, down from $270 million a year ago.
A Section on 11/08/2016