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Windstream Surges on Planned Split

NEW YORK (The Deal) -- Shares of Windstream (WIN) gained more than 23% on Tuesday morning after the telecom said it would spin off its network assets into a new REIT.

News of the tax-free divestiture also drove shares of fellow landline networking companies Frontier Communications (FTR - Get Report) and CenturyLink (CTL - Get Report).

Based in Little Rock, Ark., Windstream is a rural landline telephone company that expanded into business and broadband services through acquisitions. The new business will contain Windstream's fiber and copper networks, as well as real estate.

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The spun off entity will take on $3.5 billion in debt, and the parent said it will pay off $3.2 billion in its debt via the transaction. The REIT will lease the network to Windstream, with the annual rent starting at $650 million.

"This is a very confusing transaction," Wells Fargo Securities (WFC - Get Report) analyst Jennifer Fritzsche wrote in a Tuesday report. "However, we see this as a positive for [Windstream] shares." The deal would simplify the focus of the business and the capital structure, she wrote.

Windstream stock gained $2.47, to $13.00 on Tuesday. Fellow landline network provider Frontier Communications rose 92 cents, or 15.5%, to $6.86 per share. CenturyLink gained $3.26, or 8.6%, to $40.97. CenturyLink rose as high as $45.67.

The incumbent telecoms have used M&A and other transactions to drive growth and support their dividends.

Windstream itself was created through a 2006 split. Parent company Alltel spun out the landline business and merged it with Valor Communications Group in a $9.1 billion deal.

Alltel retained the wireless business, and later sold to Verizon Wireless.

Bank of America Merrill Lynch (BAC - Get Report) and Stephens advised Windstream on the split. Bank of America Merrill Lynch and JPMorgan Chase (JPM - Get Report) are advising the company on financing. Skadden Arps Slate Meagher & Flom is legal counsel.

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