Windstream 2006 Annual Report Download - page 67

Windstream Corporation
Form 10-K, Part I
Item 1. Business
Immediately following the Merger, the Company issued 8.125 percent senior notes due 2013 in the aggregate principal
amount of $800.0 million, the proceeds of which were used in part to pay down the Valor credit facility in the amount
of $780.6 million. As a result of the aforementioned financing transactions, Windstream assumed or incurred
approximately $5.5 billion of long-term debt in connection with the Contribution and the Merger.
As a result of the Merger, Windstream added approximately 500,000 customers in complementary markets with
favorable rural characteristics making the Company the one of largest local telecommunications carriers in the United
States and the largest local telecommunications carrier primarily focused on rural markets. In addition, Windstream
was created with an experienced and proven management team with a track record of delivering results.
Windstream is a corporation organized under the laws of the state of Delaware, and it was organized under the name
“Valor Communications Group, Inc.” in 2004.
MATERIAL ACQUISITIONS COMPLETED DURING THE LAST FIVE YEARS
On August 1, 2002, the wireline telecommunications division of Alltel completed the purchase of local telephone
properties serving approximately 589,000 wireline customers in Kentucky from Verizon Communications Inc.
(“Verizon”) for $1.93 billion in cash.
PENDING TRANSACTIONS
On December 12, 2006, Windstream announced that it would split off its directory publishing business (the
“Publishing Business”) in what Windstream expects to be a tax-free transaction with entities affiliated with Welsh,
Carson, Anderson & Stowe (“WCAS”), a private equity investment firm and a Windstream shareholder. The
transaction will be effected pursuant to the terms of a Share Exchange Agreement (the “Share Exchange Agreement”)
entered into among Windstream and Welsh, Carson, Anderson & Stowe VIII, L.P., a Delaware limited partnership,
Welsh, Carson, Anderson & Stowe IX, L.P., a Delaware limited partnership, WCAS Capital Partners III, L.P., a
Delaware limited partnership, Regatta Holding I, L.P., a Delaware limited partnership, Regatta Holding II, L.P., a
Delaware limited partnership, and Regatta Holding III, L.P., a Delaware limited partnership (each a “WCAS Sub” and
together the “WCAS Subs”). Anthony J. de Nicola, a WCAS partner, was a member of both the Valor and Windstream
Board of Directors through the announcement of this transaction, at which time he resigned.
Prior to completing the transaction, Windstream will contribute the Publishing Business to a newly formed subsidiary
(“Holdings”). Holdings will then pay a special dividend to Windstream in an amount equal to Windstream’s tax basis in
the Publishing Business (currently estimated to be approximately $30.0 million), issue additional shares of Holdings
common stock to Windstream, and distribute to Windstream certain debt securities of Holdings having an aggregate
principal amount of approximately $250.0 million less the amount of the special dividend. Windstream expects to
exchange the Holdings debt securities for outstanding Windstream debt with an equivalent fair market value and then
retire that Windstream debt. Windstream also intends to use the proceeds of the special dividend to retire Windstream debt
or repurchase Windstream equity. Following the completion of these transactions, Windstream will exchange all of the
outstanding equity of Holdings (the “Holdings Shares”) for an aggregate of 19,574,422 shares of Windstream common
stock (the “Exchanged WIN Shares”), which will then be retired. At the time of signing, the WCAS shares were valued at
approximately $275.0 million based on a trailing average of Windstream’s stock price of $14.02 at that time. Given the
value of the stock at the time of signing, the total value of the transaction was approximately $525.0 million. Based on the
trailing average of Windstream common stock at February 23, 2007 of $15.05, the Exchanged WIN shares have a value of
approximately $295.0 million, increasing the expected total value of the transaction to approximately $545.0 million.
In order to comply with the covenants in Windstream’s debt instruments, subject to the terms and conditions of the
Share Exchange Agreement, Windstream will exchange 80% of the Holdings Shares for 80% of the Exchanged WIN
Shares in a first-step closing that is expected to occur during the second quarter of 2007. The remaining Holdings
Shares held by Windstream will be exchanged for the remaining Exchanged WIN Shares in a second-step closing that
is expected to occur during the fourth quarter of 2007. The first-step closing is subject to customary conditions,
including (i) expiration of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, (ii) the parties having received certain private letter rulings from the IRS with respect to the tax treatment of the
transactions, (iii) the receipt of customary solvency and surplus opinions by the Boards of Directors of Windstream and
Holdings, and (iv) the contribution of the Publishing Business to Holdings and the exchange of Holdings debt for
outstanding Windstream debt.
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