PAETEC-Windstream Deal: No Opposition?

Windstream Corp.s acquisition of PAETEC Holding Corp. could face little or no public opposition in a review by the Federal Communications Commission.

Last month, Windstream filed an application with the U.S. communications regulator to merge with PAETEC, and the FCC noted that interested parties had until Sept. 29 to file comments or petitions to deny the merger.

The FCCs electronic comment filing system in WC Docket No. 11-142 reflects that no interested parties have filed any comments on the merger, at least not yet. The agency must find that the merger is in the public interest, convenience and necessity. 

On Aug. 1, Windstream announced an agreement to acquire PAETEC by issuing roughly 73 million shares of stock valued at $891 million and assuming or refinancing $1.4 billion in debt. The merger will leave PAETEC stockholders with approximately 13 percent ownership over the combined company.

Certain public utility commissions and PAETEC shareholders also must approve the deal, and a shareholder vote is scheduled for Oct. 27. Windstream revealed in a Securities and Exchange Commission filing that two PAETEC shareholders have filed lawsuits, alleging that PAETEC’s board of directors breached its fiduciary duties and fetched too low of a price for the merger, although the companies claim the suits lack merit.

With annual revenues of around $4 billion, Little Rock, Ark.-based Windstream operates throughout the nation, supporting 3.3 million access lines and 1.34 million high-speed Internet customers. Unlike Windstream, Fairport, N.Y.-based PAETEC is purely a competitive local exchange carrier (CLEC), meaning it has no legacy or so-called incumbent operations and was born 13 years ago out of the Telecommunications Act of 1996.

Formed five years ago through the spin-off of ALLTEL Corp.s landline business and its merger with Valor Communications Group, Windstream has both CLEC and incumbent local exchange carrier (ILEC) operations. Windstream said its acquisition of PAETEC will enable it to expand the network coverage of its subsidiaries to 42 states and grow its fiber network from 60,000 to 100,000 route miles.

Windstream told the FCC the acquisition is not expected to harm competition in any relevant market.”

In fact, by enhancing Windstreams CLEC operations and transport network, the Transaction will strengthen and promote competition and will yield tangible public interest benefits,” Windstream wrote in its FCC application.

Windstream and PAETEC are hoping to complete the merger later this year.

Under the deal, PAETEC shareholders will receive 0.460 shares of Windstream common stock for each PAETEC share.

Investors have been kind to PAETECs shares over the last several months. The stock price has been climbing steadily since it hit a 52-week low of $3 on March 23, 2011.

Shares of PAETEC closed Monday at $5.62, hovering near a 52-week high of $5.84 reached on Sept. 20, 2011.

In the second quarter, PAETEC posted a net loss of $9.4 million on revenues of $507.1 million. Windstream reported a second-quarter profit of $93 million on revenues of $1.03 billion.

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