Windstream Holdings Inc said on Monday it would buy fellow U.S. telecommunications company EarthLink Holdings Corp in a deal valued at about $1.1 billion, including debt, in a bid to cut costs and better compete with rivals.
EarthLink shareholders will receive 0.818 Windstream shares for each share they own. The deal values EarthLink at about $645.2 million or $5.92 per share, based on Windstream’s Friday closing price, according to Reuters calculations. EarthLink had about $436 million in gross debt as of Sept. 30, reports Reuters.
Shares of Windstream were up 3.6 percent at $7.50 in premarket trading, while EarthLink’s were up 1.1 percent at $6.29.
Windstream’s offer price is at a 9.2 percent premium to EarthLink’s Thursday close, before Reuters reported that the companies were in talks to merge.
Both Little Rock, Arkansas-based Windstream, which provides telephone and Internet services to consumers in rural markets, and Atlanta-based EarthLink, which was an Internet pioneer in dial-up service in the 1990s, have seen revenue fall for the past three years.
The deal, when closed, is expected to generate over $125 million in cost synergies within three years, the companies said.
Windstream shareholders will own about 51 percent of the combined company when the deal closes, while EarthLink shareholders will own about 49 percent, the companies said.
The merger comes as CenturyLink Inc last month agreed to buy Level 3 Communications Inc in a deal valued at about $24 billion, with CenturyLink keen to expand its reach in a crowded market that provides communications services to businesses. J.P. Morgan was Windstream’s financial adviser, while Goldman Sachs advised EarthLink.