Windstream shifts tone on M&A

Windstream executives adopted a slightly more conservative tone in their discussions of merger and acquisition (M&A) prospects on the company’s third-quarter earnings call today, suggesting that – despite earlier expectations – a major acquisition or merger is not likely in its near term future.

Though the rural telco’s leaders still believe that consolidation lends scale and improves carrier economics, they now believe the current state of capital markets suggest it is important for Windstream to maintain a high cash balance and high cash flow and maintain its current credit profile. Thus the company wouldn’t favor deals that would require it to take on more than a “modest” level of additional debt, Windstream said.

“We’re not interested in getting bigger simply for the sake of getting bigger,” Jeff Gardner, Windstream’s chief executive officer, said this morning. “We have ample opportunities to drive free cash flow accretion on our own balance sheet. We’re comfortable with our ability to create long-term value without a major acquisition.”

Asked to elaborate, he said, “I didn’t mean to say [M&A] is no longer a focus at Windstream. I meant to say we’re reaffirming our goal that we’ll do accretive transactions, taking a slightly different view with respect to leverage and the fact we want to maintain current leverage levels. We don’t feel the need to do a deal just to do a deal.”

Gardner said he made the comments to address “recent events in the RLEC industry,” an apparent reference to CenturyTel’s acquisition of Embarq, announced last week. Analysts on this morning’s call said they were surprised that Windstream wasn’t the one merging with Embarq. Gardner kept his response short.

“We were fairly surprised at the timing of the deal, specifically that Embarq decided to sell its business in one of the most volatile markets we’ve seen in this country in 75 years,” he said. “That’s all I’ll say.”