Verizon said on Thursday (Sep 5) it will buy fibre-optic internet provider Frontier Communications in an all-cash deal worth US$20 billion, as the US wireless carrier looks to grow its subscriber base.
The deal will also help one of the biggest US network providers better compete against rivals AT&T and T-Mobile as they double down on unlimited plans and bundling options.
Verizon has offered US$38.50 per share, representing a premium of 37.3 per cent to the closing stock price of Frontier on Sept 3, a day before reports of a potential acquisition first emerged.
Frontier has a total debt of US$11.25 billion as of June 30, which will be refinanced by Verizon as part of the deal.
Shares of Frontier were trading below the offer price at US$35.10 after surging nearly 38 per cent in the previous session. Verizon was down marginally.
Frontier has 2.2 million fibre subscribers in 25 states, which will combine with Verizon’s roughly 7.4 million such users in nine states and Washington.
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“The acquisition of Frontier is a strategic fit,” Verizon CEO Hans Vestberg said, as it provided an opportunity to be more competitive in additional markets.
Together, the companies will have 25 million fibre passings, or the number of potential customer locations a fibre network passes by, Verizon executives said on a conference call. AT&T has about 28 million such locations, according to Morningstar.
The deal is expected to close in about 18 months and will help Verizon, whose fibre network is largely in the Northeast and mid-Atlantic regions, tap into Frontier’s coverage in multiple states in the Midwest, Texas and California.
It would also be a reunion of sorts. Verizon had in 2016 sold its TV and internet business in California, Texas and Florida to Frontier in a US$10.54 billion deal, which included a portion of its fibre networks and customers.
Analysts said the deal would provide only a modest boost to Verizon.
Verizon’s fibre network covers less than 10 per cent of the US and the acquisition will give it roughly another 3 per cent, while AT&T covers less than 15 per cent, MoffettNathanson analyst Craig Moffett said.
“You would describe it as going from small to a little bit less small, but that’s about the best you could say about it,” Moffett said. “There’s simply no conceivable path where they can reach meaningful scale with fibre.” REUTERS
