SureWest Soars on Consolidated Deal

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Shares in SureWest Communications soared more than 40% Monday after Consolidated Holdings agreed to buy the independent California telecom company in a cash and stock deal worth about $340.9 million.
Stock in SureWest, which also provides voice, video and data service to 130,000 customers in Kansas City and Sacramento, Calif., rose 45% ($7.08 per share) to close at $22.67on Monday. The Consolidated Holdings offer represented a 47% premium to SureWest's closing stock price on Feb. 3.
Consolidated shares were down slightly (1.4% or 27 cents each) to $18.98 each on Feb. 6.
According to a statement, SureWest shareholders have the option of either accepting $23 in cash for each share of SureWest they own, or accepting Consolidated shares of equivalent value. As of Sept. 30, Consolidated had about 230,251 local voice access lines, 109,572 DSL customers and 32,981 IPTV customers in Illinois, Pennsylvania and Texas.
The combined companies will have operations in six states and about 1,775 employees.
SureWest significantly boosted its video operations in 2007 when it acquired Kansas City CLEC Everest Broadband for about $173 million. In November, SureWest deployed Big Band Networks switched digital video system in Kansas City, allowing it to add 50 HDTV channels and offer IPTV and other services.
"This transaction combines our cash flow generating business with SureWest's growth oriented strategy resulting in a financially strong company with a robust balance sheet and attractive dividend payout ratio," Consolidated CEO Bob Currey said in a statement. "SureWest has built one of the highest quality networks in the industry and transformed itself into a leading broadband provider. The combined company will create a broader platform from which to expand our products and services to meet the demands of our customers. We look forward to working with the SureWest employees to grow the business."
The transaction is expected to generate annual operating synergies of approximately $25 million and annual capital expenditure synergies of $5 million to $10 million, which are expected to be fully realized by the end of the first full year after close on a run-rate basis. Consolidated expects to incur merger and integration costs, excluding closing costs, of approximately $20 million to $25 million over the first two years following closing. In addition, Consolidated will be in a position to benefit from SureWest's net operating losses of approximately $67 million, as of September 30, 2011. The merger is subject to standard closing conditions including federal and state regulatory approvals and the approval by both Consolidated and SureWest shareholders.
"Both Consolidated and SureWest have a long history of delivering the highest quality products and services to its customers," SureWest CEO Steve Oldham said in a statement. "From a customer perspective, the transaction creates scale by combining our proven capabilities in delivering leading edge digital TV and broadband services as a stronger, more competitive communications company. We believe the transaction is in the best interests of our company, our customers, our communities and our shareholders."
Wells Fargo Securities, LLC and Morgan Stanley acted as financial advisers to Consolidated on the transaction and Schiff Hardin LLP acted as legal advisor. UBS Investment Bank acted as financial advisor to SureWest and Orrick, Herrington & Sutcliffe LLP acted as legal advisor.
Morgan Stanley Senior Funding, Inc. has provided Consolidated with $350 million of committed debt financing in conjunction with the acquisition. These funds will be used to refinance the debt of SureWest and pay for the cash portion of the purchase price.

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