This is not a daily occurrence where companies would be pledging billions of dollars as if they are just coins that can be thrown around and so Verizon and Frontier Communications are prime examples. Verizon plans a huge $20bn all cash deal to purchase Frontier Communications. Let me explain what this is all about and why it has attracted so much attention in the global telecommunication industry.
What’s the Buzz About?
Verizon Communications, one of the leading telecommunication companies, is the latest to make a massive acquisition to buy out Frontier Communications. This acquisition is expected to cost $20 billion, and the acquisition will be made through cash.
What’s the grand plan that lies behind this action?Â
Verizon is ready to extend its fiber services throughout the United States of America in the next few years. And to do that, who better to turn to than Frontier Communications which is the largest pure play fiber Internet provider in the United States? When acquiring Frontier, Verizon wants to enhance mobility and broadband services with quality for existing and new clients.
The Nitty-Gritty Details of The Deal
The agreement will involve Verizon investing $38.50 per share in cash for Frontier. The offer price is a 7% premium on Frontier’s 90-day volume-weighted average share price on September 3, 2024.
Verizon believes that the boost in its revenue and EBITDA growth rates should be due to this deal after its completion. Plus, they’re on the verge of incurring huge savings. Indeed, they hope to achieve at least $500 million in cost savings by the third year due to factors such as scale, distribution and network economy. This is like taking two lanes of traffic and condensing them into one super-highway speed!
What does Verizon and Frontier have to gain from this?
As for Verizon, the advantages are obvious. By incorporating Frontier’s superior fiber optics infrastructure that has a reach of 2 million subscribers in 25 states—Verizon gets the opportunity to grow its already rather extensive list of fiber and wireless assets. This includes its premium Fios service, which is already a favorite among those who want and need a fast and dependable ISP.
On the other hand, Frontier is expected to benefit from the vast resource base and experience of Verizon. Their shares did get a little scorched, losing 9.2% in early trade, but this means they have a shot at being in a team. For Frontier’s shareholders, such an agreement may turn into a cash cow if the acquisition is approved by the company’s shareholders. Besides, who does not wish to invest in and reap a profit?
What Happens Next?
It will take roughly 18 months to close the deal if everything goes as planned. That may sound like a long time, but within the context of mega mergers, said time frame is quite less! Verizon believes that even after adopting such a capital intensive strategy that entails spending $20 billion, it will still be able to sustain a healthy balance sheet and liquidity. They want to maintain their industry-leading dividend policy and continue to deleverage as well.
Verizon also stands by its full-year adjusted EPS outlook for 2024, which is expected to be $4.50 and $4.70. They also expect wireless service revenue to be up 2% to 3.5%.
The Bottom Line
This can be described as one of the biggest and most transformative deals in the world of telecommunication. It also seems to be a risky strategy for Verizon to try to extend the fiber offerings and address more consumers with high-quality services. To Frontier, it should be an opportunity to join a much larger organization that can offer more growth and diversification.
