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Consolidated Snaps Up Fairpoint for $1.5B

Iain Morris
12/5/2016
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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."


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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, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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kq4ym
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kq4ym,
User Rank: Light Sabre
12/17/2016 | 4:27:24 PM
Re: Question
I wonder if all the consolidations and mergers may lead to so much less competition that customers may end up on the wrong side, with higher costs and less service, or will the economy of scale allow for more innovation and eventually better customer service and speeds spead more widely?
brooks7
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brooks7,
User Rank: Light Sabre
12/6/2016 | 1:27:58 PM
Re: Question
 

I think I have a handle on Fairpoint.  But again, they have a primarily residential network.

seven

 
softwizard
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softwizard,
User Rank: Lightning
12/6/2016 | 11:22:40 AM
Re: Question
Although I understand what you're saying about Fairpoint, I think you don't know their network.  Fairpoint has major fiber assets - they already do a good deal of business for cell tower backhaul and business ethernet over fiber.  Yes, they did consolidate (pun-intended) a number of smaller IOCs, plus the big purchase from Verizon years back.  But now all of sudden, Consolidated is a Top 10 fiber provider in the US - crazy to see what is going on in telecom.
brooks7
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brooks7,
User Rank: Light Sabre
12/6/2016 | 10:30:21 AM
Re: Question
 

If that was in reply to me, I was actually asking for the reason for the slant of the story.  I completely accept your metrics.  I wondered if it was Iain's thinking or the way he received information from Consolidated.  For all the stats, you would not have considered Fairpoint in the same category as say Level3 (as an example).  Fairpoints major properties were Vt, NH and Me that they bought from Verizon.  Before that they were an IOC consolidator with a number of really rural properties across the US.

seven

PS - Mike Harrington, if you are still at Fairpoint....howdy!
softwizard
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softwizard,
User Rank: Lightning
12/6/2016 | 9:34:48 AM
Re: Question
A combined Consolidated FairPoint will now operate in 24 states with a 35,100 route-mile fiber network. They'll have 8,500 buildings on-net, serve 2,400 fiber connected cell towers, and over 1.6 million customers.
brooks7
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brooks7,
User Rank: Light Sabre
12/5/2016 | 11:50:33 AM
Question
 

Iain,

Why would place the merger of 2 large IOCs as a Fiber Consildation play?  I could make the argument that there is more here on the residential side than on the business side.

seven

 
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