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TMCNet: Iowa Telecom sale makes jobs uncertain

[November 25, 2009]

Iowa Telecom sale makes jobs uncertain

Nov 25, 2009 (The Gazette - McClatchy-Tribune Information Services via COMTEX) -- After losing the Maytag Corp.

corporate headquarters to an acquisition by Whirlpool, Newton residents found out Tuesday that Iowa Telecom's corporate headquarters will be the next to go.

A $1.1 billion stock and cash deal announced Tuesday will make Iowa Telecom part of Windstream Corp., based in Little Rock, Ark.

Windstream Chief Financial Officer Brent Whittington said Iowa Telecom has a nicer facility in Newton than Windstream has in Little Rock, but it would cost far to much to relocate operations to Newton, so the headquarters of the two companies will be consolidated in Little Rock.

Industry insiders have been predicting consolidation in the telecommunications subsector known as RLECs or rural local exchange carriers.

But the deal was news to employees in Newton, said Iowa Telecom spokesman Dan Eness, one of about 350 Iowa Telecom employees there. He said no changes are expected for customers or employees until the deal closes in mid-2010, Wall Street saw the offer as good news for Iowa Telecom investors, sending the company's share price up about 25 percent to nearly $16 per share from a Monday close of $12.69 per share. It calls for each investor to receive 0.804 of a share of Windstream stock, which closed Monday at $10.13 per share, and $7.90 per share in cash.

The trading price did not suggest the offer was likely to prompt a bidding war.

RLEC stocks are mainly valued by investors for their high dividends. Iowa Telecom paid a dividend of about 13 percent of its Monday price, and Windstream paid a dividend of about 10 percent. Whittington said the Iowa Telecom deal with boost Windstream's free cash flow and help sustain its dividend.

Whittington said RLECs are facing pressure to consolidate.

That pressure comes partly as customers abandon their land lines to rely solely on wireless carriers or switch to broadband services offered by cable companies.

By getting larger, Whittington said, RLECs can spread the cost of investing in better technology over more customers.

Iowa Telecom and Windstream offer similar products and services. Whittington said Windstream will likely change Iowa Telecom's marketing and service bundles, however.

Acknowledging that downsizing of corporate functions at Newton is likely, Whittington said Windstream is nevertheless looking for ways to maximize the value of Iowa Telecom's assets in Newton. He said one area being discussed is to expand the size of Iowa Telecom's call center, which is operated by a third party.

Windstream operates primarily in the southern United States. It was formed in a 2006 spinoff of Alltel Corp.'s land line phone operations and a merger with VALOR Communications Group. Iowa Telecom is its largest acquisition since the VALOR merger at the time of the spinoff.

The company has annual sales of more than $3 billion and more than 7,000 employees.

-- Comments: (319) 398-8317; david.dewitte@gazcomm.com To see more of The Gazette, or to subscribe to the newspaper, go to http://www.gazetteonline.com. Copyright (c) 2009, The Gazette, Cedar Rapids, Iowa Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

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