Windstream 2007 Annual Report Download - page 90

common stock of Valor. Valor issued in the aggregate approximately 403 million shares of its common stock to Alltel
shareholders pursuant to the merger, or 1.0339267 shares of Valor common stock for each share of the Company’s
common stock outstanding as of the effective date of the merger. Upon completion of the merger, Alltel’s shareholders
owned approximately 85 percent of the outstanding equity interests of Windstream, and the shareholders of Valor
owned the remaining approximately 15 percent of such equity interests. In addition, Windstream assumed Valor debt
valued at $1,195.6 million.
On August 31, 2007, Windstream completed the acquisition of CTC in a transaction valued at $584.3 million. Under
the terms of the agreement the shareholders of CTC received $31.50 in cash for each of their shares with a total cash
payout of $652.2 million. The transaction value also includes a payment of $37.5 million made by Windstream to
satisfy CTC’s debt obligations, offset by $105.4 million in cash and short-term investments held by CTC. Including
$25.3 million in severance and other transaction-related expenses, the total net consideration paid in the acquisition
was $609.6 million. Windstream financed the transaction using the cash acquired from CTC, $250.0 million in
borrowings available under its revolving line of credit, and additional cash on hand. The accompanying financial
statements reflect the combined operations of Windstream and CTC following the acquisition.
The premium paid by Windstream in this transaction is attributable to the strategic importance of the CTC acquisition.
The access lines and high-speed Internet customers added through the acquisition will significantly increase
Windstream’s presence in North Carolina and provide the opportunity to generate significant operating efficiencies
with contiguous Windstream markets. The transaction has increased Windstream’s position in these markets where it
can leverage its brand and bring significant value to customers by offering competitive bundled services. As of
August 31, 2007, high-speed Internet was available to 95 percent of CTC’s access lines, 75 percent of which could
offer speeds up to 10Mb.
Disposition – On November 30, 2007, Windstream completed the split off of its directory publishing business (the
“publishing business”) in a tax-free transaction with entities affiliated with Welsh, Carson, Anderson & Stowe
(“WCAS”), a private equity investment firm and Windstream shareholder.
To facilitate the split off transaction, Windstream contributed the publishing business to a newly formed subsidiary
(“Holdings”). Holdings paid a special cash dividend to Windstream in an amount of $40.0 million, issued additional
shares of Holdings common stock to Windstream, and distributed to Windstream certain debt securities of Holdings
having an aggregate principal amount of $210.5 million. Windstream exchanged the Holdings debt securities for
outstanding Windstream debt securities with an equivalent fair market value, and then retired those securities.
Windstream used the proceeds of the special dividend to repurchase approximately three million shares of Windstream
common stock during the fourth quarter. Windstream exchanged 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”) owned by WCAS, which were then retired. Based on the price of Windstream common stock of $12.95 at
November 30, 2007, the Exchanged WIN Shares had a value of $253.5 million. The total value of the transaction was
$506.7 million, including an adjustment for net working capital of approximately $2.7 million. As a result of
completing this transaction, Windstream recorded a gain on the sale of its publishing business of $451.3 million in the
fourth quarter of 2007, after substantially all performance obligations had been fulfilled.
In connection with the consummation of the transaction, the parties and their affiliates entered into a publishing
agreement whereby Windstream granted Local Insight Yellow Pages, Inc. (“Local Insight Yellow Pages”), the
successor to the Windstream subsidiary that once operated the publishing business, an exclusive license to publish
Windstream directories in each of its markets other than the newly acquired CTC markets. Local Insight Yellow Pages
will, at no charge to Windstream or its affiliates or subscribers, publish directories with respect to each Windstream
service area covered under the agreement in which Windstream or its affiliates, are required to publish such directories
by applicable law, tariff or contract. Subject to the termination provisions in the agreement, the publishing agreement
will remain in effect for a term of fifty years. As part of this agreement, Windstream agreed to forego future royalty
payments from Local Insight Yellow Pages on advertising revenues generated from covered directories for the duration
of the publishing agreement. The wireline segment recognized approximately $56.0 million in royalty revenues during
the eleven months ended November 30, 2007.
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