Windstream shifts tone on M&A

Following its $585-million acquisition of CT Communications last year, Windstream has repeatedly said more M&A would follow. Late last year, the company said credit markets would likely have to improve first. Instead, they worsened dramatically. This summer, tax restrictions imposed on Windstream as part of its spinoff from Alltel expired, allowing the company to use more stock to fund deals; that helped buoy expectations that Windstream would announce a major deal in the back half of this year. However, the collapse of financial markets this fall created a new dilemma for rural carriers that had already been waiting for capital markets to improve: deal now, in a hostile, uncertain environment, or continue to wait, and watch access lines and margins erode in the meantime.

Windstream still appears open to smaller deals, but it’s unclear how small. Iowa Telecom and Consolidated Communications might be viewed as potential candidates, while a deal with a larger candidate such as Frontier Communications now seems less likely in the near term. If Windstream were able to make a larger deal based on an all-stock transaction (like Embarq’s), it could avoid having to take on more debt, but RLEC stock prices are generally depressed right now, and Gardner’s comments about the Embarq deal suggest he doesn’t view such a move favorably in today’s climate.