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) and CenturyLink (CTL).

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

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