In a significant move to strengthen its fiber network capabilities, Verizon Communications has announced a deal to acquire Frontier Communications Parent for approximately $20 billion in an all-cash transaction. This acquisition is seen as a strategic maneuver that positions Verizon to become more competitive in various markets throughout the United States.
According to a joint statement from both companies, Verizon will pay $38.50 per share in cash for Frontier. This purchase price represents a premium of around 44% over Frontier's 90-day volume-weighted average share price as of the last trading day prior to the speculation about the deal, which was Tuesday.
Following the announcement, Verizon's stock saw a modest increase of 0.5% in premarket trading, while Frontier's stock experienced a significant decline of 9.5%. Verizon’s Chief Executive Officer, Hans Vestberg, expressed confidence in the acquisition, stating that it is a 'strategic fit' for the company.
He emphasized that this deal not only allows Verizon to grow its presence in the market but also provides the company with the necessary resources to enhance its competitive edge across the US. The acquisition is contingent upon receiving approvals from regulatory bodies as well as from Frontier's shareholders.
The completion of the transaction is projected to take approximately 18 months. Frontier’s CEO, Nick Jeffery, highlighted the value for shareholders, asserting, 'I am confident that this delivers a significant and certain cash premium to Frontier's shareholders, while creating exciting new opportunities for our employees and expanding access to reliable connectivity for more Americans.' This deal is expected to significantly expand Verizon's footprint across the United States and provide access to an additional 2.2 million fiber subscribers that Frontier serves in 25 states.
This influx of customers is set to complement Verizon's existing 7.4 million Fios connections available in nine states and Washington, DC. Furthermore, Frontier has ambitious plans to extend its fiber network by adding an estimated 2.8 million more fiber locations by the end of 2026. The financial ramifications of the transaction could prove beneficial for Verizon.
The company anticipates that the acquisition will be accretive to its revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growth rates once completed. Verizon has projected an opportunity to generate at least $500 million in run-rate cost synergies within three years post-acquisition, leveraging increased scale, distribution, and the integration of network resources.
Furthermore, Verizon has reaffirmed its full-year 2024 adjusted earnings outlook. The company expects adjusted earnings per share to remain within the range of $4.50 to $4.70 and anticipates a growth in wireless service revenue ranging from 2% to 3.5%. Current market consensus from Capital IQ indicates normalized earnings per share of $4.56, showcasing a positive outlook for Verizon in the upcoming fiscal year. As the telecommunications landscape continues to evolve, Verizon’s calculated acquisition of Frontier Communications may very well redefine competitive dynamics in the sector, solidifying its standing among key players in the market..