Windstream Said to Be Shopping Hosted Unit

**Editor’s Note: Go inside a Windstream data center by watching our documentary video.**

A new report says Windstream has wrapped one round of bids for its Hosted Solutions division, and is following up with potential buyers.

Sources told DealReporter that the Little Rock, Arkansas-based business communications giant wants more than $500 million for its data-center unit, and it’s interested in attracting “strategics rather than financial sponsors or real-estate investment trusts (REITs).” The company reportedly wants to make the sale by the end of the year or early 2016.

Writing for financial site Seeking Alpha, Jason Kaplan notes that Windstream Hosted Solutions rakes in a lot of revenue, but is only responsible for a small portion of its parent company’s total free-cash flow – and margins will struggle to improve considering the massive competition in hosted services.

“The fact of the matter is that generic hosting services is a highly competitive business,” Kaplan wrote. “When you have the likes of Google, Amazon and Microsoft driving down prices for hosting services, the economics are challenging when you are not at their scale and have little proprietary services to offer. I believe Windstream is doing the right thing in putting these assets up for sale.”

Kaplan expects Windstream – which relies on channel partners to sell many of its hosted offerings, including cloud services, colocation, backup and recovery – to use some of the proceeds of the sale to pay down more of the 5.6 billion in long-term debt that it reported on June 30.

Bloomberg reported on Thursday that Windstream has hired financial firm RBC to lend its advice on the potential sale, citing a price of $500-$700 million. Speculation is that ABRY Partners and GI Partners, both private-equity firms, are among those most likely to bid for the unit. You’ll recall that it’s ABRY whom Windstream bought the hosted division from back in 2010, for $310 million.

In its recent quarterly earnings report, Windstream said enterprise revenue rose approximately 3.5 percent over the second quarter of 2014, but sales in its small business, consumer and carrier operations all declined from the year-ago quarter.

Moody’s Investors Service downgraded Windstream stock earlier this month after the company announced a program to repurchase up to $75 million in shares. Its stock price was down more than 4 percent as of 12:36 p.m. ET on Thursday, to $6.02, as the market as a whole took a tumble. Windstream’s shares now are valued at less than half what they were at the start of the year.

Follow senior online managing editor Craig Galbraith on Twitter.

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