Windstream’s EarthLink acquisition will provide network, financial synergies, says analyst

Combined Windstream and EarthLink deep fiber nationwide network

When Windstream completes its acquisition of EarthLink, analyst firm Cowen and Company said, the telco will be able to reach the $125 million a year in synergies the service provider touted when it originally announced the deal.

Cowen and Company said in a research note that after it held a joint investor call with the CEOs of Windstream and EarthLink, it had high “confidence that the company will meet or exceed synergy expectations.”

A key contributor will include $50 million in network synergies as the two service providers migrate traffic off of third-party networks and onto their own. Windstream has continued to expand its metro and on-net fiber footprint in major cities, including most recently in Cleveland and St. Louis. These network expansions are part of a broader multicity campaign to connect more data centers and commercial buildings to Windstream’s national backbone.

“Specifically, the savings will mostly come from middle-mile network grooming; Windstream and EarthLink have existing wholesale contracts with each other, and the carriers analyzed route-by-route (and each circuit) to come up with the $50MM target,” Cowen and Company wrote.

RELATED: Windstream’s $1.1B EarthLink deal adds complementary assets, but integration, service challenges remain

But networks are just one part of the portfolio Windstream will get by acquiring EarthLink. The acquisition will broaden and combine the two companies’ product sets, including both of their new SD-WAN products, along with vertical expertise.

“Windstream was on a similar path (arguably a few quarters behind in access/network grooming), with its own successful enterprise margin growth story, and felt it was far enough along and finally ready for an acquisition to scale its national platform,” Cowen and Company wrote. “In addition to scaling the platform and leveraging EarthLink’s new routes, merger will combine the best of both product sets (especially bullish on EarthLink’s SD-WAN solution) and leverage their respective sales vertical expertise (EarthLink retail/restaurants, Windstream healthcare and government).”

When Windstream reports its fourth-quarter results later this month, Cowen and Company suspects the main focus of discussion for the telco will be the completion of the acquisition.

“We expect Windstream to report mostly in-line 4Q16 results that will largely be trumped by commentary and insights on the EarthLink acquisition,” the analysts said. “Windstream has already received FCC approval and is still on track for a March 1 close.”

The FCC’s Wireline Competition Bureau and the International Bureau noted that “no comments were filed in opposition asked for public comments on the proposed acquisition."

The two bureaus added that they “find, upon consideration of the record, that grant of the applications will serve the public interest, convenience, and necessity.”