Verizon has announced plans to purchase fiber-optic internet provider Frontier Communications in an all-cash deal valued at $20 billion. This acquisition is part of Verizon’s strategy to expand its subscriber base and better compete with major rivals AT&T and T-Mobile, who are aggressively marketing unlimited plans and bundled services.
Verizon has offered $38.50 per share for Frontier, which represents a 37.3% premium over Frontier’s closing stock price on September 3, just before news of the potential acquisition broke. As part of the deal, Verizon will refinance Frontier’s existing debt, which stood at $11.25 billion as of June 30. Despite the premium, shares of Frontier were trading below the offer price at $35.10 following a nearly 38% surge the previous day. Verizon’s stock saw a slight decrease after the announcement.
Verizon acquires Frontier Communications for $20 billion to expand its fiber network https://t.co/ESTSsmBtRQ
— devoldermort (@devoldermort) September 5, 2024
The acquisition will significantly increase Verizon’s fiber-optic footprint. Currently, Frontier has 2.2 million fiber subscribers across 25 states, while Verizon has about 7.4 million fiber users in nine states and Washington, D.C. The combined company will have approximately 25 million fiber passings, which are potential customer locations within the fiber network’s reach. This number is still slightly behind AT&T, which has around 28 million fiber passings, according to Morningstar data.
Verizon CEO Hans Vestberg described the acquisition of Frontier as a “strategic fit,” highlighting the potential for increased competitiveness in new markets. The merger is expected to close within the next 18 months and will allow Verizon to expand its presence beyond the Northeast and mid-Atlantic regions, tapping into Frontier’s coverage areas in the Midwest, Texas, and California.
This deal also marks a sort of reunion for the two companies. Back in 2016, Verizon sold its TV and internet business in California, Texas, and Florida to Frontier in a $10.54 billion transaction, which included parts of its fiber network and customer base.
While the acquisition is a step towards growth, analysts suggest it will only provide a modest boost to Verizon’s overall market presence. Verizon’s fiber network currently covers less than 10% of the United States, and with this acquisition, it will only expand by about 3%. In comparison, AT&T’s fiber coverage is under 15%, according to MoffettNathanson analyst Craig Moffett. “You would describe it as going from small to a little bit less small,” Moffett said, indicating that Verizon still has a long way to go to achieve significant scale in fiber-optic services.
Debevoise & Plimpton LLP is guiding Verizon Communications on a deal that will see the telecommunications giant absorb Cravath Swaine & Moore LLP-advised Frontier Communications at a $20 billion enterprise value. https://t.co/D2Crqr42o9 pic.twitter.com/263LEvvo1U
— Law360 (@Law360) September 5, 2024
Overall, this acquisition is seen as a strategic move to increase Verizon’s competitiveness in the fiber-optic market, although it may not drastically change its market share in the near future.
Key Points:
i. Verizon is set to acquire Frontier Communications for $20 billion in an all-cash deal, aiming to expand its fiber-optic subscriber base.
ii. The acquisition offers a 37.3% premium on Frontier’s stock and includes refinancing $11.25 billion in debt.
iii. This deal will increase Verizon’s fiber reach but only provides a modest boost to its U.S. market presence.
iv. The merger will give Verizon access to Frontier’s markets in the Midwest, Texas, and California.
v. Analysts remain skeptical about the deal’s impact on Verizon’s scale in the fiber-optic market.
Fallon Jacobson – Reprinted with permission of Whatfinger News