Frontier Communications has inked a deal to sell its operations and assets in Washington, Oregon, Idaho and Montana for $1.352 billion in a move designed to reduce debt and shore up the company's liquidity.
Frontier is selling that lot to WaveDivision Capital (WDC) in partnership with Searchlight Capital Partners. WDC, a company helmed by cable and broadband industry vet Steve Weed, is nabbing the Frontier wireline assets and operations more than a year after Weed sold Wave Broadband to TPG Capital for $2.36 billion.
The deal, expected to close within the next year, involves properties in four states that serve more than 350,000 residential and commercial customers, and a network that passes 1.7 million locations, including 500,000 that are FTTP-capable. That four-state portion of Frontier's wireline business pulled down about $619 million in revenues, $272 million of adjusted EBIDTA and $46 million in net income for the 12 months ended March 31, 2019.
WDC and Searchlight said they have formed a new company to operate the business and honor existing customer commitments and contracts after the transaction closes.
Reports that Frontier would look to sell off some of its landline assets surfaced last year.
Why this matters
Frontier billed this as a move to reduce debt and strengthen its liquidity, and could spark speculation that more asset sales could follow. Wall Street seemed to approve of today's sale announcement, as Frontier shares were up more than 10% in mid-morning trading Wednesday.
In a research note, Wells Fargo analysts pointed out that the wireline assets in Washington and Oregon were part of the original Fios markets that Frontier acquired from Verizon in 2010. Frontier followed up in 2015 with the acquisition of Verizon wireline operations in California, Florida and Texas.
Those analysts added that this is a region of the US that fragmented and is in need of consolidation, and today's deal could be a "bigger trigger event" that paves a path for CenturyLink's consumer division. "Recall, CTL indicated it had retained financial advisors to look at strategic alternatives for this segment," the Wells Fargo analysts noted.
On CenturyLink's Q1 call earlier this month, CEO Jeff Storey offered an update on a strategic review that will include the vetting of the company's consumer business. "We have now engaged advisors to assist us in that review. Let me be clear, we're early in what I expect to be a lengthy and complex process," he said, stressing that CenturyLink won't modify its normal operations or investment patterns during the review period.
The sale of Frontier's wireline assets and operations in Washington, Oregon, Idaho and Montana could be a good fit, as Kirkland, Wash.-based WDC and Weed have experience serving the northwestern region of the US. Wave Broadband, the company formerly run by Weed that is now part of a group that includes RCN Corp. and Grande Communications, provides residential and business services up and down the west coast of the US, including parts of Washington, Oregon and California.
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- Frontier CFO Resigns, Stock Price Drops
- TPG Capital Catches Wave Broadband
— Jeff Baumgartner, Senior Editor, Light Reading