By PETER HUSSMANN
As far back as 2005, the board of directors of Iowa Telecom had been exploring the possibility of acquiring or merging with different companies due to the difficulties expected in continuing to operate as a stand-alone company, a narrative contained in an SEC filing on the Newton company's planned merger under Windstream Corporation indicates.
The filing shows that Iowa Telecom had been in negotiations with "two mid-sized rural telecommunications companies" starting in 2005 and 2006 and continuing until late last year. In addition, following Windstream's interest in the company, its financial firm, J.P. Morgan, actively solicited takeover offers from three other similar-sized companies.
At a December 2008 strategic planning session of the board, members determined that "company's future would be challenging, primarily due to a continuing trend of access line losses." In addition, the industry-wide trend toward consolidation would diminish the possibilities for a "merger of equals" and reduce the number of potential acquirers of the Newton-based company. Board members were also worried about the company's need to refinance more than $500 million in debt by November 2011, a move that would be difficult and costly in the current market conditions.
"The board recognized that continuing to operate Iowa Telecom as an independent entity would be challenging in the absence of significant acquisitions or a merger with a similarly-sized company," the SEC filing states.
For much of 2009, Iowa Telecom remained in negotiations with "Company A" and "Company B," as identified in the SEC filing, but were unable to come to acceptable terms. It wasn't until late May that Windstream made its first overture to Iowa Telecom with a meeting of its two CEOs, Alan Wells of Iowa Telecom and Jeffrey Gardner of Windstream, coming on July 15 in Des Moines.
At a special meeting of the board on Aug. 31, the board reviewed its financial forecasts that questioned its long-term viability as an independent company. The board directed Wells to continue discussions with Windstream and Company B. The board also approved the retention of J.P. Morgan as its financial adviser and asked that it solicit interest from potential purchasers of the company, including Windstream.
In September, the board approved change of control agreements with its executive officers and a new employment contract for Wells.
At a special meeting in late October, board members reviewed the activities since its August meeting. They were told that while one of the companies contacted by J.P. Morgan was interested in a merger, it would not be able to move on the matter for six to nine months and the other two were not interested. That left Windstream and Company B still in contention.
Negotiations continued on the transaction prices offered by the two companies until early November when the $7.90 in cash and 0.804 shares of Windstream stock was offered. On Nov. 16, Gardner, Wells, along with Craig Lang, the lead director of the Iowa Telecom board, met in Newton to discuss several terms of the proposed merger, "including the impact on the transaction on the Newton area and the State of Iowa and which member of the Iowa Telecom board of directors would be designated by Iowa Telecom to join the Windstream board of directors."
On Nov. 22, the Iowa Telecom board's compensation committee met to approve the "compensation-related aspects of the proposed transaction." The next morning Windstream's board of directors met to approve the merger.
That afternoon, the Iowa Telecom board met and discussed the potential advantages and disadvantages of agreeing to the takeover. In agreeing to the buyout, the board noted the premium Windstream was paying for the company, the fairness of the deal as reviewed by its financial adviser (J.P. Morgan will be paid $9 million if the merger is consummated and may be eligible for an additional $1.2 million in discretionary fees), Windstream's willingness to continue certain compensation levels for employees remaining after the merger and its willingness to offer severance for those positions terminated and "Windstream's willingness to retain a strong local presence in Iowa and to expand the call center in Newton, Iowa."
On the downside, the board noted "the impact on the employees of Iowa Telecom due to reductions in force that will be necessary for Windstream to achieve its projected synergies associated with the merger."
The Iowa Telecom board voted unanimously to recommend to shareholders to approve the merger agreement. No date has yet been set for that shareholder meeting.