Windstream Corp.’s (WIN) acquisition binge continues as the Little Rock , Arkansas-based rural telecom operator has recently announced that it will buy Iowa Telecommunication Services (IWA) for approximately $1.1 billion. This represents the company’s fourth acquisition in the past six months.
 
Iowa Telecom is a small local exchange carrier providing wireline services in rural Iowa, Minnesota, and Missouri. The transaction, which is subject to approvals from Iowa shareholders and federal and state regulators, is expected to close in mid-2010.
 
Under the agreement terms, Windstream will pay Iowa shareholders $261 million in cash ($7.90 for each share they own). Windstream will also give 0.804 shares of its stock for each share of Iowa Telecom, equating to roughly $269 million. Additionally, the company will assume $598 million of Iowa debt. The company plans to finance the cash payment and repay the debt by raising debt.  
 
Windstream remains challenged by the steady decline in its fixed-line telephone business given the rapid customer migration to cellular and cable TV services. Sustained access line erosion continues to weigh on the company’s top-line. Windstream is buying smaller rural carriers to expand its customer base and boost revenues. The company’s bigger rivals CenturyTel (CTL) and Embarq already merged in July 2009.
 
Windstream recently acquired Pennsylvania-based rural phone and Internet service operator D&E Communications (DECC) for $333 million. The acquisition has strengthened the company’s foothold in Pennsylvania, providing 114,000 access lines and 46,000 high-speed Internet customers.
 
Furthermore, Windstream is 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. Windstream is also buying another small telecom carrier Lexcom for $143 million, which will expand its reach in North Carolina.
 
Successfully acquisition of Iowa Telecom will strengthen Windstream’s presence in Upper Midwest and provide the company 256,000 fixed telephony access lines, 95,000 broadband Internet customers and 26,000 TV customers. The transaction is expected to be accretive to Windstream’s cash flow and earnings in the first year following the buyout. Moreover, the company expects to achieve annual cost synergies of $35 million, to be achieved through savings on capital and operating expenses.
 
Windstream is one of the leading rural telecom carriers in the US with approximately 2.93 million fixed access lines, 1.05 million broadband connections and roughly 323,000 video subscribers. The company is reportedly moving its shares from the New York Stock Exchange (“NYSE”) to the NASDAQ effective Dec 10, 2009. NASDAQ has a more innovative trading platform and charges lower listing and annual fees than NYSE which would help the company to cut its expenses.
 
The company’s ongoing acquisitions to expand its coverage markets and subscriber count are vital for its survival in an industry, which is consolidating. 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. Standard & Poor’s Rating Services has recently downgraded the company’s credit rating raising concern about its aggressive acquisition strategy and high balance sheet leverage. 
Read the full analyst report on “WIN”
Read the full analyst report on “IWA”
Read the full analyst report on “CTL”
Read the full analyst report on “DECC”
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