425: Uniti Group to Merge with Windstream, Forming Major Fiber Provider

Uniti Group and Windstream are merging to create a leading fiber provider, with Uniti shareholders owning approximately 62% of the combined company.

Summary

• Uniti Group Inc. and Windstream Holdings II, LLC have entered into a definitive merger agreement.
• Upon closing, Uniti shareholders will own approximately 62% of the combined company's common equity, while Windstream shareholders will own approximately 38%.
• Windstream shareholders will receive $425 million in cash, $575 million of preferred stock in the new company, and warrants for approximately 6.9% of the common stock.
• The merger aims to create a premier fiber provider with a strong presence in Tier II and III markets.
• The combined company is expected to generate up to $100 million in annual operating expense synergies and $20-$30 million in capital expenditure savings within 36 months.
• The combined company's net leverage at year-end 2023 is projected to be 4.8x.
• The merger is expected to close in the second half of 2025, pending regulatory and shareholder approvals.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the merger, highlighting strategic and financial benefits, synergy opportunities, and a de-levered balance sheet. The management comments and Elliott's support further contribute to the positive sentiment.

Positives

• The merger creates a premier digital infrastructure company with a strong presence in Tier II and III markets.
• The combined company is expected to have an enhanced free cash flow profile and improved leverage.
• The transaction removes dis-synergies between Uniti and Windstream and aligns capital allocation objectives.
• The combined company will have enhanced strategic optionality with a scaled national platform and high-quality fiber portfolio.

Negatives

• Uniti will suspend its common dividend.
• The merger is subject to regulatory and shareholder approvals and may not close as expected.

Risks

• The merger is subject to customary closing conditions, including regulatory and shareholder approvals.
• There are risks associated with realizing the expected synergies, efficiencies, and cost savings from the transaction.
• Potential difficulties in retaining employees as a result of the announcement and pendency of the transaction exist.
• The value of New Uniti's securities to be issued in the transaction may fluctuate.

Future Outlook

The combined company expects to expand its FTTH build by up to 1 million additional households and improve its financial profile over time.

Management Comments

• Kenny Gunderman (President and CEO of Uniti): 'We believe the combined company, with its scaled facilities-based infrastructure platform, will be uniquely positioned within Tier II and III markets throughout the U.S.'
• Kenny Gunderman (President and CEO of Uniti): 'The combination of Uniti and Windstream also removes several dis-synergies that exist in the current landlord/tenant relationship and greatly enhances Unitis optionality for strategic initiatives.'
• Johannes Weber (Portfolio Manager at Elliott Investment Management): 'As one of the largest investors in both Uniti and Windstream, we are pleased to support this combination, which has a compelling strategic rationale and creates a significant opportunity for enhanced value creation.'

Industry Context

The announcement reflects a trend towards consolidation in the telecommunications industry, with companies seeking to expand their fiber footprint and capitalize on the growing demand for high-speed broadband.

Comparison to Industry Standards

• Comparible companies include Lumen, Frontier Communications, and Consolidated Communications.
• The combined company will have ~217,000 fiber route miles, which is comparable to the larger players in the industry.
• The targeted synergies of $100 million in opex and $20-30 million in capex are in line with typical merger synergies in the telecom sector.

Stakeholder Impact

• Shareholders of Uniti are expected to benefit from the enhanced value creation and strategic optionality of the combined company.
• Windstream shareholders will receive cash, preferred equity, and common shares in the new company.
• Customers are expected to benefit from the expanded fiber network and improved service offerings.
• Employees of both companies may experience changes as a result of the integration.

Next Steps

• Obtain regulatory approvals.
• Obtain approval from Uniti shareholders.
• Close the merger, expected in the second half of 2025.
• Integrate the two companies and realize the expected synergies.

Key Dates