(Bloomberg) -- Verizon Communications Inc., the largest US phone company, agreed to buy rival telecommunications operator Frontier Communications Parent Inc. for about $9.59 billion to expand its high-speed internet business.
Frontier’s investors will get $38.50 a share, a 37% premium to the closing price on Tuesday, the day before news of a pending deal came out, Verizon said in a statement on Thursday. The transaction values the Dallas-based company at $20 billion including debt.
Telecommunications companies like Verizon are bulking up on fiber-optic assets to add capacity for customers’ surging data use. The flow of data is expected to increase further as more companies adopt artificial intelligence. In July, T-Mobile US Inc. said it would invest $4.9 billion in a joint venture with private equity firm KKR & Co. to buy fiber-optic internet service provider Metronet.
The deal will combine Frontier’s fiber network with Verizon’s portfolio of fiber and wireless assets, including its Fios offering. It also brings back some assets that Verizon sold to Frontier in 2015 for $10.54 billion. But those were “a totally different type” of asset, based on a different standard, Verizon Chief Executive Officer Hans Vestberg said in an interview on Bloomberg TV.
Frontier filed for Chapter 11 bankruptcy in 2020 as debt piled up after years of losses in its wireline telecom business. It emerged from bankruptcy the following year and focused on building out its fiber network to better compete against cable and wireless companies.
Over about the past four years, Frontier has invested $4.1 billion upgrading its network and replacing antiquated copper lines. Today, Frontier derives more than 50% of its revenue from fiber products, Vestberg said. Its 2.2 million fiber subscribers across 25 states will join Verizon’s nearly 7.4 million Fios customers in nine states and Washington DC.
The move by Verizon “would mark a much deeper commitment to a fiber broadband strategy and future-proof its high-speed internet footprint with the best long-term medium for delivering the service,” Bloomberg Intelligence analyst John Butler wrote Wednesday after news reports of a pending acquisition. “A deal would put Verizon’s consumer fiber subscribers ahead of rival AT&T by lifting its base to 9.1 million vs. the latter’s 8.8 million.”
Frontier shares slid 9.3% in New York on Thursday to below the sale price as analysts priced in a lengthy regulatory review and little chance of a competing bid. Verizon was little changed.
The takeover will allow Verizon to “become more competitive in more markets” in the US, Vestberg said in the statement.
As the market for wireless services becomes saturated, Verizon and its peers have focused on expanding their home-internet footprint, competing with each other and entrenched cable companies. But building new fiber-optic lines is expensive and takes time, making existing broadband providers ripe for takeovers.
“We could have continued to build with our fiber,” Vestberg said in a call with analysts, “but the economics of this deal and the time to market was of course very, very appealing for us.”
When asked if he thought there would be more deals, Vestberg said he was “very happy with the assets we have,” and said he doesn’t “think we need much more. We are going to be big. Clearly the ones with the largest broadband offering.”
The boards of Verizon and Frontier have approved the deal, which is expected to close in about 18 months if shareholders and regulators agree to it. Verizon also reaffirmed its full-year guidance in the statement. The transaction is expected to boost revenue and adjusted earnings before interest, tax, depreciation and amortization growth rates upon closing, according to the companies. It’s expected increase earnings per share starting in 2027. Verizon sees at least $500 million of annualized cost synergies by the third year.
Frontier initiated an internal review of its business earlier this year. The company has faced pressure from activist investor Jana Partners to improve its returns. It reported sales of $5.8 billion in 2023, with about 52% of total revenue from activities related to its fiber-optic products.
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