NEW YORK and DALLAS - In a move to substantially increase its fiber network, Verizon Communications Inc. (NYSE, NASDAQ: NYSE:VZ) has agreed to acquire Frontier Communications (OTC:FTRCQ) Parent, Inc. (NASDAQ: FYBR) for $20 billion. The all-cash deal will add 2.2 million fiber subscribers to Verizon's customer base and extend its network to 25 million premises across 31 states, including Washington, D.C.
The transaction, expected to close in approximately 18 months, will be accretive to Verizon’s revenue and Adjusted EBITDA growth rates upon completion. Verizon has also projected at least $500 million in annual run-rate cost synergies by the third year post-acquisition.
Frontier has been recognized for its significant investments in fiber infrastructure, totaling $4.1 billion over the past four years, and the acquisition is seen as a strategic fit for Verizon, enhancing its ability to deliver premium services. With this acquisition, Verizon aims to leverage Frontier's network to bolster its Fios offerings and expand its intelligent edge network capabilities.
Verizon's Chairman and CEO Hans Vestberg stated that the acquisition will enhance their position as a provider of choice and extend their premium offerings to more customers. Nick Jeffery, President and CEO of Frontier, expressed that the agreement is a testament to Frontier's progress in building a best-in-class fiber network.
The deal values Frontier at $38.50 per share, a 43.7% premium over Frontier's 90-day volume-weighted average share price as of September 3, 2024. It has received unanimous approval from both companies' Boards of Directors and is subject to approval by Frontier shareholders, regulatory approvals, and other customary closing conditions.
Verizon has reaffirmed its full-year 2024 guidance, including total wireless service revenue growth of 2.0% to 3.5% and Adjusted EBITDA growth of 1.0% to 3.0%. The company also expects an Adjusted EPS of $4.50 to $4.70 and capital expenditures between $17.0 billion and $17.5 billion.
Centerview Partners LLC and Morgan Stanley (NYSE:MS) & Co. LLC served as financial advisors to Verizon, while PJT Partners (NYSE:PJT) and Barclays (LON:BARC) advised Frontier. Legal counsel for Verizon was provided by Debevoise & Plimpton LLP, and Frontier was advised by Cravath, Swaine & Moore LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP.
This announcement is based on a press release statement from Verizon Communications, Inc.
In other recent news, Frontier Communications secured over $23 million in grants for the expansion of high-speed fiber broadband service in California's San Bernardino and Riverside counties. The funding, sourced from the California Public Utility Commission, is expected to enhance internet connectivity for unserved and underserved communities. Additionally, Benchmark upgraded Frontier's stock price target from $35 to $37, maintaining a Buy rating, reflecting positive expectations for the company's future earnings into 2025.
Frontier reported a 2% revenue increase, reaching $1.48 billion, and a 5% growth in EBITDA during its Q2 2024 earnings call, largely due to significant fiber broadband customer additions. Despite a net loss of $123 million, primarily due to non-cash items, the company's operational cash flow remained robust at $374 million. Frontier also raised $750 million through a second fiber securitization and achieved $580 million in cost savings since 2021.
The company anticipates consumer revenue to grow in the low-single-digit range and business and wholesale revenue to be at the higher end of the 1% to 2% range for the remainder of the year. Frontier's aggressive expansion and customer adoption rates indicate a strong demand for high-quality fiber broadband services, which contribute to both their customer base and financial performance metrics. These are the latest developments in the company's ongoing efforts to bridge the connectivity gap and foster inclusive growth and development within the state of California.
InvestingPro Insights
In the context of Verizon Communications Inc.'s acquisition of Frontier Communications Parent, Inc. (NASDAQ: FYBR), recent metrics and analysis from InvestingPro provide a deeper understanding of Frontier's financial health and market performance. Frontier's market capitalization stands at approximately $9.63 billion, reflecting its significant presence in the telecommunications sector. However, the company's P/E ratio is reported at -100.39, indicating that investors are paying a premium for a company that is not currently profitable. This is further evidenced by the adjusted P/E ratio for the last twelve months as of Q2 2024, which is -231.95.
Despite the lack of profitability, Frontier has seen a significant return over the last year, with a 142.05% price total return, suggesting strong investor confidence and potential for future growth. This optimistic market sentiment is also supported by the company's substantial price increase, trading near its 52-week high at 98.65% of that value. Nevertheless, it's important to note that InvestingPro Tips highlight concerns such as Frontier operating with a significant debt burden and analysts revising their earnings downwards for the upcoming period. Additionally, the company's short-term obligations exceed its liquid assets, which could present liquidity challenges.
For investors interested in a more comprehensive analysis, InvestingPro offers additional insights. Currently, there are 13 more InvestingPro Tips available for Frontier Communications, which can provide valuable information for assessing the company's prospects in light of the acquisition and beyond. These tips can be found at https://www.investing.com/pro/FYBR, offering a detailed perspective on Frontier's financial performance and market trends.
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