Verizon, one of the largest US telecoms groups, has agreed a $20bn deal to buy Frontier Communications, a US fibre internet provider, in a deal that would sharply extend Verizon's fibre footprint across the nation and sharpen its competitive edge in broadband services.
Sources close to the deal said Verizon has offered Frontier a buyout deal at a premium of 44% to the latter's 90-day volume-weighted average share price on September 3. The deal is expected to close in about 18 months.
This seems to be a strategic step by Verizon toward the extension of its fibre network, and to take full advantage of Frontier's strong presence in the Midwest, Texas, California, and other states. Hans Vestberg, Chief Executive Officer of Verizon, was quite articulate about interest in the delivery of premium broadband to more customers and being more competitive in more markets across the US.
The telecommunications industry has seen a spate of dealmaking in recent months, as providers look to extend high-speed broadband services. Verizon's deal for Frontier is the latest example, after T-Mobile formed joint ventures with private equity groups EQT and KKR respectively to acquire Lumos and Metronet.
The deal should produce at least $500 million in annual cost savings by year three and will add to Verizon's revenue and adjusted profit. "This acquisition is going to deliver substantial and certain cash premium for Frontier's shareholders, create exciting new opportunities for its employees, and expand access to reliable connectivity, said Nick Jeffery, President and Chief Executive Officer of Frontier.
This transaction underlines the growing importance of fibre networks in the US telecoms market, and strategic steps that key industry players take towards expanding their fibre footprint and delivering premium broadband services. While that might raise some concerns over the concentration of ownership in the fibre market, one thing is certain: Verizon and Frontier are at the forefront of a new wave of growth driven by broadband services at high speed. It will be interesting to see fibre infrastructure and digitalization driving decisions as the sector plans future growth.
Written by: Kobe Yip
Sources: The Financial Times, The Economic Times
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