The spate of fiber consolidation in the US telecom market continued Monday with news that Consolidated Communications is to acquire rival operator Fairpoint in a $1.5 billion stock-based deal.
Operating out of Illinois, Consolidated Communications Inc. provides broadband and business communications services across 11 states, while North Carolina-based FairPoint Communications Inc. is active in 17.
Both companies maintain extensive fiber networks -- totaling 35,100 "route miles" -- and believe the tie-up will deliver competitive and cost-related benefits.
The announcement comes just days after Zayo Group Inc. (NYSE: ZAYO), another prominent fiber operator, said it would buy competitor Electric Lightwave for $1.4 billion to beef up its business in the west of the country. (See Zayo Continues Fiber Binge With $1.4B Bid for Electric Lightwave.)
It also follows CenturyLink Inc. (NYSE: CTL)'s much bigger $34 billion move for Level 3 Communications Inc. (NYSE: LVLT) in October and Windstream Communications Inc. (Nasdaq: WIN)'s more recent takeover of EarthLink Inc. (Nasdaq: ELNK). (See CenturyLink Splashes $34B on Level 3 Buy and Windstream Buys EarthLink for $673M.)
Under the terms of the latest deal, Fairpoint shareholders will receive 0.73 shares of Consolidated Communications stock for each Fairpoint share. The transaction will leave Consolidated shareholders with 71.3% of the combined company, and Fairpoint investors with the remainder.
In its statement Consolidated said that its offer "equates to a premium of 17.3% to the 30-day average exchange ratio as of December 2."
On a pro forma basis, the new-look business would have had revenues of more than $1.5 billion and adjusted EBITDA of $566 million in the year to September 2016, according to Consolidated. On a standalone basis, Fairpoint, which has about 2,600 employees, made $830 million in revenues over the same period.
Consolidated reckons the merger will generate "annual operating synergies" of about $55 million within two years of its completion.
Consolidated CEO Bob Udell will become president and CEO of the combined company.
"The financial benefits associated with the combination in the form of synergies and reduced leverage provide us additional operating and strategic flexibility going forward," said Udell in Consolidated's statement. "The transaction is meaningfully accretive to free cash flow per share in the first year, strengthening the dividend payout ratio while maintaining our current dividend policy to shareholders."
Subject to normal regulatory approvals, Consolidated expects to complete the deal by mid-2017.
— Iain Morris, , News Editor, Light Reading