Windstream Holdings Inc. will sell its data center business for $575 million in a move that underlines the shifting business strategy the telecommunications company has undertaken since a new CEO took control 10 months ago.
Windstream announced the all-cash deal Monday with TierPoint, a St. Louis-based data services company. Windstream said the agreement would create a partnership between the two and allow Windstream to invest capital into its telecommunications business.
Under the deal, which is expected to close in a few months, Windstream and TierPoint will be able to sell their products and services to each other's prospective customers. TierPoint, as a data center services company, provides cloud computing and managed information-technology services. Other than its data services, Windstream offers broadband, digital TV and phone services.
Improving Windstream's network has been a focus of Chief Executive Officer Tony Thomas since he took over the Little Rock-based company in December.
The sale of the data storage business will allow Windstream to retain data center services through the arrangement with TierPoint as Windstream uses the cash from the transaction to pay down debt and invest in its operations, Thomas said Monday.
"This is an opportunity for Windstream to further focus on its network strategy," he said. That strategy includes improving its consumer business and expanding high-speed Internet capabilities and infrastructure serving business customers.
Windstream has 27 data centers. While 14 will go to TierPoint under the deal, Windstream will keep its smaller data centers that were not of interest to TierPoint, Thomas said.
Windstream did not say what will happen to its data center business employees when the sale is completed. A spokesman for TierPoint could not be reached for comment Monday.
"Windstream Hosted Solutions and its employees have earned a reputation for providing excellent customer service and innovative enterprise-class solutions," said TierPoint Chief Executive Officer Jerry Kent in a prepared statement.
"We value these team members as a key asset in the acquisition and their expertise adds to our strength and focus on providing a superior level of customer care," he said.
Windstream stock jumped more than a 6 percent after the company announced the plans Monday morning. Windstream shares gained 9 cents, or 1.3 percent, to close at $6.94 on the Nasdaq. The company has traded between $4.42 and $16.65 during the past 52 weeks.
The sale of Windstream's data storage business had been speculated about since August, but the details surprised analysts.
Barry McCarver, an analyst with Stephens Inc., said he expected the company would sell off only its data managing and hosting services, as it is a tougher business with competitors such as Amazon Web Services and Google, which have deep pockets and a lot of capital.
"It is a surprise that they sold all data center assets," he said.
Windstream's data services business grew in recent years under the leadership of Windstream's previous CEO, Jeff Gardner, who sought to expand the company's business services, particularly in managing and hosting client data.
To expand Windstream's business services, the company spent billions of dollars acquiring new companies. As a result of the spending, Windstream's earnings slumped, and investors began to worry about the company's ability to pay its dividend, increase revenue and to even turn a profit.
When Thomas replaced Gardner as lead executive in December he shifted Windstream's focus to improving the company's communications network.
In doing so, he reshaped Windstream's leadership team and restructured the company's business divisions that handle the range of services the company offers with the goal of improving Windstream's profitability.
"This falls in line with the strategy Tony Thomas has laid out from the get go," McCarver said. "He said this company is going to increase its focus on providing better network services. Selling this business -- that's what he's doing."
Business on 10/20/2015