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Windstream and EarthLink Agree to Merge for $1.1 Billion

ELNK T CTL WIN

Trades from $3

On Nov 7, Windstream Holdings, Inc. (WIN - Free Report) , a telecommunications and data services firm, announced a merger with its rival, EarthLink Holdings Corp. (ELNK - Free Report) for a total value of $1.1 billion. The companies reached an all stock deal where each shareholder of EarthLink will receive 0.818 shares of Windstream per share. Windstream will issue about 93 million shares for the deal which is valued at $673 million, while the total value including debt will tally to $1.1 billion. The transaction is anticipated to close in the first half of 2017. Shareholders of Windstream will control 51% of the combined company while remaining portion will be owned by the EarthLink shareholders.

Expected Synergies

Presently, both the telecom companies are facing high competition, falling revenues and rising costs. However, we believe that the combined entity will enjoy benefits of increased scale which will aid it to effectively compete against the likes of other telecom players like CenturyLink Inc. (CTL - Free Report) and AT&T Inc. (T - Free Report) . Moreover, the merged entity is expected to save around $125 million in operating and capital expenses annually.

Focus on Business Services

Small and Medium Business services is a highly growing revenue segment in the data communications industry. However, since both Windstream and EarthLink are witnessing falling revenues indicating that they have not been able to effectively capitalize on the growth opportunities present in the industry. Thus, a combined entity with higher scale of operations is likely to change that scenario.

The Bottom Line

The telecom industry has been witnessing a surge in consolidation amongst major players due to an intensely competitive environment. Notably CenturyLink recently agreed to purchase Level 3 Communications Inc. for $34 billion. But it has to be seen whether smaller firms like Windstream can compete against its larger counterparts even after the merger.

Both Windstream and EarthLink currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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