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Windstream to spin off network assets into an REIT

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Arkansas-based Windstream Corp., which purchased former Ephrata-based D&E Communications in 2009, today announced plans to spin off certain telecommunications network assets into an independent, publicly traded real estate investment trust.

The transaction will allow the REIT, which will own Windstream’s existing fiber and copper network and other fixed real estate assets, to expand its network and diversify its assets through acquisitions, according to a news release from the company.

The company’s board of directors approved the plan following the receipt of a favorable private letter ruling from the Internal Revenue Service. Barring unfavorable regulatory approval, the deal is expected to be complete in the first quarter of 2015.

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

As part of the deal, the newly formed REIT will lease use of fiber and copper network to Windstream through a long-term triple-net exclusive lease with an initial estimated rent payment of $650 million per year, according to the release. Windstream will operate and maintain the assets and deliver advanced communications and technology services to consumers and businesses. Customers will see no change in their rates, scope or terms of service, the company said.

Windstream said it does not anticipate operational changes. The REIT will have about 25 employees, and 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.

By spinning off the assets, Windstream will lower its debt by about $3.2 billion, giving it cash to invest in broadband and transition faster to an IP network, according to the release.

The transaction also means the new REIT can provide a good dividend to shareholders and grow revenue through lease escalation, capital investment and acquisitions, according to the release.

Bank of America Merrill Lynch and Stephens Inc. are serving as exclusive financial advisers to Windstream in the transaction. Bank of America Merrill Lynch and J.P. Morgan also are advising with respect to certain financing matters. Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal adviser to Windstream.

Windstream bought D&E communications for $333 million in November 2009. It cut almost 240 jobs, sold offices and consolidated operations into an office in West Earl Township, according to Business Journal records.

Messages left for Windstream’s spokesman were not immediately returned.

The company trades its shares on the NASDAQ under the ticker symbol WIN.

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