After Windstream buys Iowa, is Consolidated next?

What’s next for Windstream (NYSE:WIN)? As it announced its fourth acquisition in six months yesterday (its biggest buy yet, in fact), the company’s CEO, Jeff Gardner, maintained that, although he’d focus on execution and integration, he wasn’t done with M&A.

“A number of private companies could be opportunities for us in the future,” he told Connected Planet Tuesday. “There’s not a lot of public companies left out there, but there are a couple.”

A couple is right. In a note yesterday, Stifel Nicolaus analysts said Consolidated Communications (NASDAQ:CNSL) and Alaska Communications (NASDAQ:ALSK) are about the only publicly held acquisition targets Windstream has left. And given the unique integration challenges posed by Alaska’s geographic isolation, the analysts said, “We view Consolidated as the next, most logical potential target for Windstream.”

Consolidated fits the same profile that attracted Windstream to its latest purchase, Iowa Telecom. It’s a small, well-run, incumbent triple-play provider. Its service territory fills a big gap in Windstream’s footprint in Illinois and complements it somewhat contiguously in Texas and Pennsylvania. It’s a bit smaller than Iowa Telecom, but it has nearly twice as many CLEC lines — about 72,000. And it also brings a home-grown terrestrial IPTV service that Windstream doesn’t have today.

Continuing the current break-neck pace of its M&A would be tough for Windstream, though. In the wake of its Iowa announcement –which included the assumption of about $600 million in Iowa’s debt — Standard & Poor’s downgraded Windstream’s credit rating deeper into junk territory, to BB, citing its aggressive acquisition drive. That’s two notches below “investment-grade” status, a quality that Embarq cited as one reason it chose to merge with CenturyTel.

On the other hand, Windstream has a window of opportunity now to scoop up assets while rivals CenturyLink and Frontier are busy integrating big purchases.

“Given CenturyLink’s recent closing of its acquisition of Embarq and Frontier’s focus on closing the Verizon transaction, we continue to view Windstream as the most logical acquirer of RLEC assets in the near-term,” Stifel Nicolaus analysts said.

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