An Arkansas-based telecom giant has agreed to buy D&E Communications for $330 million, it was announced today.
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Windstream Corp. expects to complete the acquisition in the second half of the year, subject to the approval of D&E's shareholders.
The deal ends almost a century of independence for Ephrata-based D&E, started in 1911 by the late William F. Brossman, a farmer and fertilizer distributor.
"Certainly, selling this nearly 100-year-old company was not easy. It's a difficult day," said Thomas E. Morell Sr., D&E chief financial officer.
"Yet it's a positive day in that it allows the company to remain competitive for many many years" by joining forces with a far larger firm, he added.
Windstream is 21 times the size of D&E when measured by sales. Windstream has annual revenues of $3.2 billion; D&E, $150 million.
It's 15 times larger when measured by customers. Windstream has 3 million customers; D&E, 200,000.
"In this industry today, size matters. Scale matters. Given where we are, from a competitive standpoint, it's going to be important to be bigger in the future...," said Morell.
"They've got the size and scale and resources that we don't have," he said.
Whether D&E keeps operating under that name — a condensed version of the former Denver & Ephrata Telephone — remains to be determined, said Morell.
Likewise, the impact of the deal on D&E's work force remains to be determined, although job cuts are "a reasonable expectation," he acknowledged.
D&E has about 500 employees, mostly in Lancaster, Berks and Centre counties. Some 340 of that total are based here.
To acquire D&E, Windstream would pay $86 million in cash and $73 million in stock, as well as assume $171 million of D&E's debt.
Those three elements would bring the deal's total price tag to $330 million.
D&E shareholders would receive $10.88 in cash and stock for each D&E share they hold, based on Windstream's closing stock price Friday of $9.05 a share.
This price of $10.88 a share represents a premium of 61 percent over D&E's closing price Friday of $6.75 a share.
In addition, D&E shareholders would see a 30 percent increase in their effective annual dividend.
James W. Morozzi, D&E president and chief executive officer, in a prepared statement described the deal as being "in the best long-term interests of our shareholders, customers and employees."
Windstream CEO Jeff Gardner lauded the deal because it adds "an exceptional, well-run company" in D&E that would roughly double his firm's presence in Pennsylvania.
Morell pointed out that Windstream and D&E, despite being very different sizes of companies, have similar integrated product lines and similar rural markets.
Both companies provide local exchange ("dial tone") service in their home markets, offer competing local service in the home markets of other phone companies, provide Internet service and offer other telecom services.
Morell said D&E considered a number of other ways to become a bigger company, besides being acquired.
"We looked at all our alternatives...," he said, including making an acquisition of its own.
But D&E's opportunities to do a deal were few, Morell indicated.
"They were somewhat limited," he said. "Our own balance sheet would only allow us to do so much and the current credit markets would only allow us to do so much."
Staff writer Tim Mekeel can be reached at tmekeel@LNPnews.com or 481-6030.
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