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What happened

Shares of network, security, and cloud services company EarthLink (NASDAQ: ELNK) fell as much as 10.9% on Monday after the company announced third-quarter earnings and a merger agreement with Windstream (WINMQ). Shares are down about 10% as of 3:43 p.m. EST.

So what

EarthLink reported revenue and a loss per share of $235.1 million and $0.10, respectively. These results are down from revenue of $270.9 million and EPS of $0.00 in the year-ago quarter.

EarthLink's revenue was slightly higher than expectations. But analysts were expecting a narrower loss per share. On average, analysts were expecting EarthLink to report revenue of $232 million and a loss per share of $0.01.

For the merger, boards of both Windstream and EarthLink have "unanimously approved a definitive merger agreement under which Windstream and EarthLink will merge in an all-stock transaction valued at approximately $1.1 billion, including debt," said a company press release.

Under the agreement, EarthLink shareholders will receive 0.818 shares of Windstream common stock for each EarthLink share. Based on Windstream's stock price at the time of this writing, this would equate to about $5.96 per EarthLink share, representing about a 6% premium to EarthLink's $5.62 stock at the time of this writing.

Now what

EarthLink has optimistic expectations for the merger. EarthLink CEO Joe Eazor estimates the deal will create a net present value of approximately $900 million worth of synergies.

While EarthLink expects the merger to close during the first half of next year, investors should note the merger isn't certain, as the company's press release explains: "It is subject to the satisfaction of certain customary conditions, including approval by the Federal Communications Commission, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable state-level regulatory approvals and approval by Windstream and EarthLink shareholders."