Verizon feeds its urge to converge with $20B play for Frontier

Verizon made its play for Frontier Communications Thursday morning, announcing a $20 billion deal that it believes will fuel a plan to scale out a fiber-mobile convergence strategy and give it “owners economics” across its wireline and wireless networks.

While the deal will expand Verizon’s fiber footprint, enable it to bundle fiber, fixed wireless access (FWA) and mobile services across a broader area and create financial synergies, some analysts aren’t wild about the idea (more on that later).

Under terms of a deal that will be subject to a Frontier shareholder vote, Verizon is putting forth an all-cash offer of $38.50 per share, implying an enterprise value of $20 billion ($10.4 billion of debt and $9.6 billion of cash). Verizon expects to refinance Frontier’s existing debt and inherit the company’s net operating losses and for the deal to be accretive to revenue and adjusted EBITDA growth rates upon closing. The Verizon and Frontier boards have unanimously approved the proposed transaction.

Blair Levin, a policy analyst with New Street Research, said in a research note that the proposed deal has a “strong chance” to get the necessary antitrust and regulatory approvals and that this year’s presidential election won’t impact the outcome. Levin also points out that a Verizon/Frontier combo would still have fewer subscribers than Comcast, Charter Communications or AT&T.

Verizon also anticipates operating cost synergies of at least $500 million by year three. Those are expected to be sourced from network integration, third-party contract synergies, savings on marketing and advertising and savings from eliminating duplicative functions (e.g., layoffs).

Bigger footprint

The deal for Frontier is poised to provide Verizon with a total of 2.2 million subscribers and a fiber network that reaches 25 million premises across 31 states and Washington, D.C. If Verizon is able to close the deal in an expected 18 months, here’s how the combined coverage map will look:

To view the coverage map and read the complete article, visit Light Reading.