Verizon Acquires Frontier Communications for $20 Billion

By Deborah Mary Sophia and Harshita Mary Varghese
(Reuters) – Verizon announced on Thursday that it will acquire fiber-optic internet provider Frontier Communications (OTC:FTRCQ) for $20 billion in an all-cash deal, aiming to expand its subscriber base.

This acquisition allows Verizon to better compete with rivals like AT&T (NYSE:T) and T-Mobile, who are enhancing their unlimited plans and bundling options.

Verizon is offering $38.50 per share, which represents a premium of 37.3% to Frontier’s closing stock price on September 3, just before acquisition talks became public.

Frontier, carrying a total debt of $11.25 billion as of June 30, will have that debt refinanced by Verizon as part of the acquisition agreement.

While Frontier shares were trading at $35.10, below the offer price after a nearly 38% increase in the previous session, Verizon shares dipped slightly.

With 2.2 million fiber subscribers across 25 states, Frontier’s roster will combine with Verizon’s approximately 7.4 million subscribers in nine states plus Washington, D.C.

Verizon CEO Hans Vestberg commented, “The acquisition of Frontier is a strategic fit,” emphasizing the competitive edge it will provide in additional markets.

Combined, Verizon and Frontier will reach 25 million fiber passings, the metric indicating the number of locations where a fiber network is available. AT&T currently leads with around 28 million such locations, according to Morningstar.

The deal is anticipated to close in about 18 months, enabling Verizon to extend its fiber network from mainly the Northeast and mid-Atlantic regions into the Midwest, Texas, and California.

Interestingly, this acquisition marks a return for Verizon, which sold its TV and internet business in California, Texas, and Florida to Frontier in a $10.54 billion transaction in 2016, including part of its fiber networks and customers.

Analysts suggest that while the purchase might not drastically change Verizon’s market position, it represents a modest strategic uplift. Verizon’s fiber network currently covers less than 10% of the U.S., and this acquisition will extend its reach by about another 3%. By comparison, AT&T covers less than 15% of the U.S. market.

Analyst Craig Moffett from MoffettNathanson remarked, “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. There’s simply no conceivable path where they can reach meaningful scale with fiber.”