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What the PAETEC deal means for Rochester

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John C.
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PAETEC is also hopping on board the Windstream bandwagon. As a result, grand plans for downtown Rochester might get left in the dust.

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When PAETEC announced Monday it was being acquired by Arkansas-based Windstream in a deal valued at $2.3 billion, it was fair to say the news shocked many Rochesterians.

The homegrown telecommunications company has nearly 900 workers in the Rochester area, a number that's dwarfed by, for example, Xerox's 6,800. That doesn't mean PAETEC hadn't laid a claim on the Flower City's mindspace, splashing its name on events, and even a local soccer stadium.

But the largest claim of them all was the future of downtown.

For better or worse, unfairly or not, the City of Rochester had largely pinned its downtown revitalization hopes on a new PAETEC headquarters. It was to be built on the former site of the much-beloved, long-disused Midtown Plaza shopping mall.

On Monday morning that all changed.

Now the future of PAETEC's rooftop gardens and "sophisticated exterior LED lighting effects" is very much TBD. PAETEC CEO Arunas Chesonis says the fate of the downtown "HQ" is now in Windstream's hands. When the merger is finalized in about six months, the PAETEC brand will no longer exist, and Chesonis will be out the door.

Who is Windstream?

Windstream is a phone and broadband company based in Little Rock, Ark. The company was spun out of Alltell Wireless in July of 2006.

At its inception, Windstream's bread and butter was old-fashioned land lines. According to Lance Turner, an editor at Arkansas Business, Windstream has spent the last several years trying to get away from that. In 2010 alone, Windstream completed four acquisitions.

"This is another effort in Windstream's continuing evolution toward offering more broadband, more business services and more data services to major companies," says Turner.

Turner says the deal greatly expands Windstream's national footprint - from 29 to 46 states and the District of Columbia. Windstream also lands a handful of data centers, thousands of miles of fiber optic cable and expertise in serving multi-location business customers.

"It's all toward grabbing more fiber," Turner says, "grabbing more cloud-hosted type infrastructure to meet the demands of business customers." 

Whither PAETEC?

For PAETEC the deal represents an end of an era. Founded in 1998, the telecommunications company shot to prominence, quickly ensconcing itself as a Rochester success story. At one point, PAETEC's downtown headquarters was going to be the tallest building in downtown.

Now the company will be sold to Windstream for $891 million in stock, with Windstream taking on $1.4 billion of PAETEC's debt.

Analyst George Conboy of Brighton Securities says the goal is for PAETEC to become a profitable part of Windstream. PAETEC hasn't turned a profit since 2007. 

Windstream says the deal will generate about $100 million in annual operating "synergies." Conboy says some those cost savings are likely to come from targeted layoffs.

"If you are a person who helps the network run ... the news is probably fine," says Conboy. "But if you offer more managerial - especially corporate - support to PAETEC as an independent company, you've already got your resume updated I'm sure by now."

Conboy adds that $100 million in savings might sound like a lot, but the combined companies will have annual revenues of over $6 billion.

"Handing over the keys"

One PAETEC executive on the way out the door is the CEO himself. 

Arunas Chesonis says he'll spend the next six months making sure the transition goes smoothly for his customers and his employees. After that, he says he doesn't know.

"My wife and I will sit back, maybe take a week off and think about what's next," says Chesonis.

He says his last day at PAETEC - a company whose name is made up of the initials of the first names of his wife and kids - will be the day after the sale is finalized.

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