Verizon announced on Thursday its plans to acquire Frontier Communications in an all-cash deal valued at $20 billion, marking a significant move to expand its fiber network. The U.S. wireless carrier has offered $38.50 per share, representing a 37.3% premium to Frontier’s closing price on September 3, prior to rumors of the acquisition.
The deal, expected to close within 18 months, will boost Verizon’s competitiveness in the premium broadband market, particularly against rivals such as AT&T. By acquiring Frontier’s 2.2 million fiber subscribers across 25 states, Verizon will expand its reach, adding to its existing 7.4 million FiOS connections in nine states and Washington, D.C.
Frontier, which had $11.25 billion in debt as of June 30, saw its shares surge by nearly 38% on the news of the potential acquisition. However, in premarket trading, its stock fell slightly to $35.14, below Verizon’s offer price, while Verizon shares rose by about 1%.
This acquisition follows a previous transaction between the two companies in 2016, when Verizon sold its TV and internet business in California, Texas, and Florida to Frontier for $10.54 billion. That deal included portions of Verizon’s FiOS fiber network, making this new acquisition a strategic move to re-integrate and expand its fiber footprint.
Verizon CEO Hans Vestberg described the deal as a “strategic fit” that builds on Verizon’s two decades of leadership in the industry. “This acquisition will allow us to become more competitive in a broader range of U.S. markets,” Vestberg said.
The transaction is projected to generate at least $500 million in annual cost savings within three years and contribute to Verizon’s revenue growth and adjusted profit. Should the deal be terminated under certain conditions, Verizon would be required to pay Frontier a termination fee of $590 million.
Despite the major acquisition, Verizon maintained its annual profit and wireless service revenue forecasts, even after missing revenue estimates in July due to a decline in prepaid wireless subscribers. Centerview Partners and Morgan Stanley advised Verizon on the deal, while Barclays served as Frontier’s financial advisor.
