Frontier Communications has agreed to buy Verizon Communication’s wireline operations in California, Florida and Texas for $10.5 billion in cash a deal that will double the regional carrier’s size.
The Verizon properties include 3.7 million voice connections, 2.2 million broadband connections, and 1.2 million FiOS video connections. The deal is expected to close in the first half of 2016.
"This transaction marks a natural evolution for our company and leverages our proven skills and established track record from previous integrations," said Frontier chairman and CEO Maggie Wilderotter in a statement. "These properties are a great fit for Frontier and will strengthen our presence in competitive suburban markets and accelerate our recent market share gains. We look forward to realizing the benefits this transaction will bring to our shareholders, customers and employees."
Frontier currently offers voice, video and data service in about 28 states. The company has done deals with Verizon before, purchasing 4.8 million access lines in 14 states in 2009 from the company.
Frontier said the Verizon assets generated revenue of more than $5.7 billion in 2014 and the regional carrier expect cost synergies of $525 million in the first year after close and $700 million by year three. Frontier expects the transaction to be 35% accretive to free cash flow per share in year one and to improve Frontier's strong dividend payout ratio by 13 percentage points.
In addition, Verizon has spent about $7 billion in building out FiOS in the acquired territories. Frontier estimates that about 54% of the markets are FiOS enabled.
“These are not fixer-uppers,” Wilderotter said in a conference call to discuss the deal.
For Verizon, the deal allows it to further concentrate its wireline operations on the East Coast.
"This transaction will further strengthen Verizon's focus on extending our leadership position in our core markets and create value for both Verizon and Frontier shareholders,” Verizon chairman and CEO Lowell C. McAdam said in a statement. “Frontier has proven to be an excellent partner. Together we will ensure a smooth transition for our customers and employees, and I have no doubt these teams will continue putting the customer first."
Frontier will finance this acquisition with the issuance of a combination of equity and equity-linked securities, as well as debt. Frontier has secured a commitment for bridge financing from J.P. Morgan, Bank of America Merrill Lynch and Citibank for 100% of the purchase price. The transaction is not subject to a financing condition.
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