Leading rural telecom carrier Windstream Corp. (WIN) has reportedly concluded its acquisition of privately held small carrier Lexcom Inc. for $143 million in cash. This represents the company’s second successfully completed acquisition in the past six months.
 
Windstream acquired Pennsylvania-based rural phone and Internet service operator D&E Communications (DECC) for $333 million in November 2009, which strengthened its foothold in Pennsylvania. The company raised $400 million in unsecured debt in September 2009 to finance the D&E and Lexcom acquisitions.
 
Based in Lexington, North Carolina, Lexcom provides telecommunications (local and long distance telephone, wireless and Internet) and cable TV services to customers primarily in rural areas. The company generated revenues of $44 million and OIBDA of $15 million in the 12 month-period ended Sep 30, 2009.
 
Acquisition of Lexcom Communications has strengthened Windstream’s foothold in North Carolina, providing 23,000 access lines, 9,000 high-speed Internet subscribers and roughly 12,000 cable TV customers. Moreover, the transaction is expected to be accretive to Windstream’s free cash flow in the first full year following the acquisition. Windstream expects annual synergies of approximately $5 million from the acquisition, to be achieved through savings in operating and capital expenditures.
 
Windstream remains challenged by the steady decline in its fixed-line business given the rapid customer migration to cellular services. Sustained access line erosion continues to weigh on the company’s top-line. Windstream is therefore, acquiring smaller rural carriers with similar businesses to expand its customer base.
 
The company is also set to buy privately held regional competitive local exchange carrier NuVox Inc (for roughly $643 million) to boost its high-speed Internet business and expand presence across the Southeast and Midwest states. Moreover, the company recently announced that it will buy small local exchange carrier Iowa Telecommunication Services (IWA) for approximately $1.1 billion (including $598 million of Iowa debt).
 
Windstream’s ongoing acquisitions to expand its coverage markets and subscriber count are vital for its survival in an industry, which is undergoing consolidation. However, the acquisitions will strain the balance sheet moving forward as the company is funding most of them with debt.
 
Windstream currently has just $290 million in cash and roughly $5.3 billion in total debt, which elevates the concern. The company’s credit rating faces the threat of a possible downgrade by Fitch Ratings given the concern about its aggressive acquisition strategy and high balance sheet leverage.
Read the full analyst report on “WIN”
Read the full analyst report on “DECC”
Read the full analyst report on “IWA”
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