Difficult path to Uniti-Windstream deal revealed in SEC filing
ARKANSAS DEMOCRAT-GAZETTE, ANDREW MOREAU, AUGUST 8, 2024
Uniti Group Inc. and Windstream Holdings evaluated multiple deals separately and as a combined entity from several suitors over a two-year period beginning in 2020, including one offer from Uniti that would have put Windstream in charge of running the company.
The final deal in May put Uniti management in charge of the combination.
Details of the deal, and the process to reach it, were reported last week in a nearly 1,200-page document that updates the U.S. Security and Exchange Commission on the deal that Uniti is asking shareholders to approve. The Little Rock companies would reunite in a $13.4 billion merger projected to close in mid2025.
Most interestingly, Uniti outlines merger discussions each company had separately and together going back to 2020 after Windstream emerged from bankruptcy. Discussions included more than a half-dozen proposals to buy each separately — and several to combine Uniti and Windstream as a condition of a merger. The companies that proposed the deals are unnamed.
One suitor proposed paying $12.50 per share to acquire Uniti alone in November 2020. That offer was upped to $14.50 in June 2021, assuming Windstream would be included. That company’s proposal increased to $16.50 per share in April 2022 — a deal that would have been valued at $14 billion. The Uniti-Windstream deal is valued at $13.4 billion.
The documents reveal Uniti was juggling offers from five companies at the same time, including some that were interested in parts of the business. Talks collapsed in early 2022 when global bond markets made deals difficult to finance, the filing said.
Talks to reunite the Little Rock companies began in November 2022 with an overture from Uniti management, including a proposal to combine the companies in a reverse merger that would have Windstream in charge of running the business. That offer didn’t gain traction.
Uniti and Windstream chief executive officers met in October 2023 to further discussions, leading to an agreement that a reunion made sense financially and strategically. Near the end of October, Uniti pressed Windstream’s ownership — New York hedge fund Elliott Management — for “a response quickly on Windstream’s interest in pursuing the potential transaction, noting that (Uniti) planned to pursue other strategic options if Windstream declined.”
Elliott responded with its own offer on Oct. 31, one day after Windstream Chief Executive Officer Tony Thomas suddenly resigned after 17 years with the company. Elliott officials and Uniti Chief Executive Officer Kenny Gunderman had at least a dozen discussions in November, leading up to monthly meetings through May, when the deal was announced.
The filing also details competitive pressures the merged company will face, updates financial information to include pro forma earnings for the combined entity and
outlines regulatory approvals required, including review by the Federal Trade Commission, the Federal Communications Commission and the antitrust division of the U.S. Department of Justice.
Annual revenue at Windstream has declined steadily since 2021, falling by 9% at the end of 2023 from $4.4 billion in 2021. With those declines, net income dropped from a profit of $17.4 million in 2021 to a loss of nearly $210 million last year.
Uniti revenues have held steady over the same period while net income dropped from a profit of $122.6 million in 2021 to a loss of $82.9 million in 2023.
As a combined entity, Uniti’s filing says pro forma profits for the full year 2023 — assuming the merger was completed in January 2023 — would have delivered $604.3 million in net income last year on revenue of $4.3 billion. Earnings per share were projected at $1.60.
Uniti’s filing outlines the key issues stockholders should consider in voting on the Windstream acquisition but does not include a timetable for voting. Once approved, Uniti stockholders will own 62% of the company and Windstream’s owners will hold 38%. The new company also no longer will operate as a real estate investment trust.
Uniti is pitching the deal to shareholders as a means to build the nation’s largest independent fiber provider and a leader in the communications field serving rural customers and many of the world’s largest companies: Apple, Google and major U.S. wireless carriers.
If it rejects the offer, Uniti would have to reimburse Windstream for costs and fees up to $25 million. That balloons to $75 million if Windstream pulls out because Uniti violates financial obligations.
The transaction is projected to close in the second half of 2025, a year from now.