Last week, a detailed settlement proposal was published under which Windstream (WINMQ), or Win, and Uniti (NASDAQ:UNIT) agreed to settle their court case. Although a trial is set for the first week of March, it is the expectation that the two parties agree on a settlement in a matter of days or weeks.
The settlement will have a substantial impact on especially the shareholders of Uniti. Over the last weeks, the discussion shifted from the risk of a trial, and its outcome, to the uncertainties around a settlement. In this article, we try to put the proposal in perspective in order to estimate the financial impact for the Uniti shareholders.
The settlement proposal: Uniti concessions and asset purchases
The proposal has five major aspects:
- Transfer of lease contracts generating a total of $29 million EBITDA
- Issuance of Uniti shares
- Transfer of dark fiber and the termination of exclusivity on certain of the lease assets
- Equipment loan
- Commitment to fund Growth Capital Improvements (GCI)
(We ignore the ILEC/CLEC proposed contract changes as the financial impact seems limited).
1) Transfer of lease contracts
The easiest part of the transaction is that Uniti will purchase some fiber lease contracts that generate $29 million of total EBITDA ($21 million plus $8 million). Uniti will pay for this the weird sum of $244,564,544 and 37 cents. Uniti must fund this amount with the issuance of new shares.
The above is from the Uniti proposal. In Win's proposal, Uniti should pay an extra $8 million per annum over ten years for the fiber contracts generating $8 million of EBITDA.
A quick calculation learns that Uniti obtains assets at a price of 9% or 12% of EBITDA. If these are expected to be very long-term contracts, these numbers sound like arm's length.
2) Sale of shares
