* Deal valued at about $330 mln
* Windstream to assume net debt of about $171 mln
* Sees deal adding to free cash flow in first full year
* D&E Communications shares surge 52 pct (Adds details, analyst comments, updates share movement)
By Bijoy Anandoth Koyitty
BANGALORE, May 11 (Reuters) - U.S. local telephone company Windstream Corp WIN.N agreed to acquire D&E Communications Inc DECC.O for about $330 million, a deal that will nearly double its operating presence in Pennsylvania.
As part of the deal, D&E Communications shareholders will receive 0.650 shares of Windstream stock and $5 in cash for each share held, Windstream said in a statement.
Windstream, which will also assume estimated net debt of about $171 million, said it plans to finance the deal with existing cash and current capacity on its revolving credit agreement.
Based on Windstream stock's Friday closing price, the deal values D&E Communications at $10.88 per share, a premium of about 61 percent to its Friday closing of $6.75, D&E Communications said in a separate statement.
The acquisition, which is expected to close in the second half of 2009, will add to free cash flow in the first full year and reduce dividend payout ratio, Windstream said.
Windstream currently has about 200,000 access lines and serves 85 exchanges in Pennsylvania.
"They know the territory, they know the competitors, and the potential for cost synergies is very high," Stephens Inc analyst Barry Mccarver said by phone.
Windstream expects the deal to add to free cash flow after expected annual synergies of about $25 million in operating expenses and capital expenditure savings.
Windstream said the deal will boost its Competitive Local Exchange Carrier (CLEC) operations with the addition of seven markets in Pennsylvania.
Pennsylvania-based D&E operates as a CLEC in Altoona, Harrisburg, Lancaster, Pottstown, Reading, State College and Williamsport and serves about 47,000 lines.
D&E Communications has been fairly successful in its CLEC business catering to small businesses and has eaten into the market share of bigger incumbents such as Verizon Communications Inc (VZ.N), Mccarver said.
D&E Communications provides services including high-speed Internet, local and long distance telephone, video and professional IT services.
The company generated $148 million in revenue and $64 million in operating income before depreciation and amortization in the 12 months ended March 31, 2009.
Stephens Inc and Goldman Sachs & Co acted as financial advisers to Windstream on the deal.
Shares of Windstream, which competes with AT&T Inc (T.N) and Sprint Nextel Corp (S.N), were down 20 cents at $8.85 in afternoon trade on the New York Stock Exchange, while D&E shares surged more than 52 percent to $10.30 on Nasdaq. (Editing by Deepak Kannan)