Windstream Spins Off Copper, Fiber Network Assets in New and Novel Move

Windstream Communications is getting mostly positive reaction in its move to spin off certain telco network assets into an independent, publicly traded real-estate investment trust (REIT).

Windstream says the deal will help it speed up network investment, provide enhanced services to customers and maximize shareholder value.

“It’s so new and novel,” Bloomberg quoted Stephen Sweeney, a strategist at Elevation LLC, as saying. “I’m skeptical it can be replicated, but the closest competitor stocks are rallying.”

To that point, Windstream’s stock price rose more than 23 percent in early-morning trading, but had slid back to an 11 percent gain as of 12:40 p.m. ET. The decision was having a positive impact on other network services providers – such as Verizon, AT&T and a number of cable companies – as well.

Windstream says the transaction will allow the REIT, which will own the Little Rock, Arkansas-based company’s existing fiber and copper network and other fixed real-estate assets, to expand its network and diversify its assets through acquisitions. The company’s board of directors approved the plan after getting a favorable ruling from the IRS.

“This transaction will make Windstream a more nimble competitor in today’s increasingly dynamic communications marketplace and accelerate our deployment of advanced communications services,” said Jeff Gardner, president and CEO of Windstream. “Additionally, the REIT will have geographically diverse, high-quality assets and sustainable cash flows with the ability to grow and diversify over time.”

Windstream says the tax-free spinoff will help the company lower debt by approximately $3.2 billion and increase free cash flow to accelerate broadband investments, transition faster to an IP network and pursue additional growth opportunities to better serve customers. As a result, Windstream says it will offer faster broadband speeds and more robust performance to consumers. It plans to expand availability of 10 Mbps Internet service to more than 80 percent of its customers by 2018. It also said it would more than double the availability of 24 Mbps Internet service by 2018, expanding to more than 30 percent of its customers.

The transaction will not result in significant operational changes at Windstream. The REIT will have approximately 25 employees. Tony Thomas, Windstream’s chief financial officer, will become CEO of the REIT.

Francis X. “Skip” Frantz, a Windstream director, will serve as chairman of the REIT’s board.

Standard & Poor’s Rating Services affirmed its “BB-“ corporate credit rating on Windstream after the announcement, saying the company’s financial outlook is stable.

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