Unlock Editor’s Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
Verizon’s $20 billion acquisition of Frontier Communications Inc. faces a tough showdown at an investor meeting next week after some of the fiber network company’s largest shareholders demanded a price increase of at least 30%.
Canada-based BCE’s proposed $3.6 billion acquisition of Ziply, a telecommunications company with a fiber-optic network similar to Frontier’s, has become a flashpoint this week.
Frontier investors told Verizon and the Frontier board that valuation metrics in the Zipley deal suggested a much higher acquisition price for Frontier, citing long-term growth prospects for fiber broadband services. .
The company’s growth projections value the company’s stock at more than $50 per share, well above its trading price of $38.50, according to an analysis prepared by Frontier shareholders.
Glendon Capital Management and Cerberus Capital Management, which together own about 17% of Frontier, are among the investors hoping to increase the purchase price, people familiar with the matter said.
Ares Management, the company’s single largest shareholder with a roughly 15% stake, has not said which way it plans to vote, according to people familiar with the matter. The company hired boutique bank Houlihan Lokey to evaluate its options.
Verizon’s offer in early September was 44% above Frontier’s trading range at the time. The company says the offer is fair and there are no plans to increase prices. But the deal is also central to the company’s strategy to expand its fiber internet capabilities, and shareholders see it as a sign it won’t break the bank.
Frontier said if shareholders reject the terms of the deal, the company will revert to its strategy as a standalone business. The company’s stock price was about $34 as of Friday. Some analysts are skeptical of Frontier’s high praise from shareholders.
“Frontier stockholders’ choice is really between $38.50 per share in cash or the risks and opportunities that the journey presents,” MoffettNathanson managing director Nick Del Deo said in a note Wednesday. Either he will be on his own in the future,” he wrote.
Verizon and Frontier declined to comment.
The proposed deal has suffered a further blow in recent days after high-profile proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis told investors to abstain from next week’s vote. However, this is effectively considered a rejection of the $38.50 price.
“Given the potential for significant future value increases and the lack of urgency to approve a transaction that is not expected to complete for more than a year, it is reasonable for shareholders to exercise their right to abstain for now. ” ISS said in a November 1 report.
Frontier filed for bankruptcy protection in 2020 after its acquisition of a regional communications business created an unsustainable debt burden. The company was able to emerge from bankruptcy in 2021, transferring control of its stock to bondholders and reducing its debt by billions of dollars. It was relisted on the stock market shortly thereafter.
Some of the company’s major shareholders, including Ares, Cerberus, and Glendon, remain with the company even after the bankruptcy. The investors were some of the group’s largest bondholders, with Cerberus holding more than $500 million in debt, according to court filings.
Activist hedge fund Jana Partners was able to get Frontier to begin the sale process earlier this year, earlier than the company’s management had originally planned.
Recent deals between Verizon’s rivals have increased competition in the space, with T-Mobile earlier this year announcing a joint venture with private equity groups EQT and KKR to acquire Lumos and Metronet, respectively. .
Telecommunications companies that have traditionally relied on traditional copper businesses, such as Frontier, have invested heavily in fiber networks to compete with cable broadband providers. While the company’s traditional business has struggled in recent years, there has been renewed interest in building fiber internet as data loads explode with upcoming artificial intelligence applications.
“It’s really a game of chicken,” said one person involved in the deal.
Additional reporting by James Fontanella-Khan and Eric Platt in New York
