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Verizon's proposed acquisition of Frontier Communications has hit a bump in the road amid word that a set of Frontier shareholders intend to vote against it over concerns that Verizon's offer undervalues Frontier.
Verizon's proposed $20 billion acquisition of Frontier Communications has hit a sizable bump in the road amid word that some Frontier investors intend to oppose the deal.
Glendon Capital Markets, which owns almost 10% of Frontier, believes that Verizon's proposed offer of $38.50 per share is too low, Reuters reported, citing people familiar with the firm's plans. Cerberus Capital Management, which has a 7.3% stake in Frontier, has "privately expressed" that Verizon's proposal undervalues Frontier but has not offered a firm indication on how it will vote, Reuters added.
Frontier shareholders are set to vote on the proposed deal on November 13.
In a more public move, Cooper Investors Pty Limited, an investor that owns about 800,000 Frontier shares, announced Tuesday that it also believes that Verizon's offer "significantly undervalues Frontier and fails to reflect value of anticipated synergies." The firm said it intends to vote against the proposal and is urging other Frontier shareholders to reject the proposal as well.
In an October 15 letter to the Frontier board, Cooper Investors argued that the standalone value of Frontier is up to 24% to 62% higher than Verizon's offer price and that the "fair transaction value would be up to 94% higher."
Frontier better off as a standalone, shareholder claims
Australia-based Cooper Investors argued that Frontier remaining a standalone, public company is the "optimal outcome for stockholders." More specifically, the firm believes shareholders are on the cusp of reaching the "most rewarding period" as Frontier continues to push ahead with a fiber network buildout initially targeting about 10 million locations. Frontier, the firm held, is poised to see "deployment risks decline and cash flows increase."
Frontier added a record 388,000 fiber network passings in Q2 2024, ending the period with 7.2 million fiber passings and 2.2 million fiber customers.
"Based on Frontier's own projections and relevant trading comparisons, we believe that the Company remains a compelling investment as a standalone entity. Frontier does not require strategic partners," the firm explained in the letter. "To the contrary, the Company has the strategy, expertise and access to funding to complete the planned network build to 10 million fiber passings."
Cooper Investors said it issued the letter after learning that Frontier management, at the direction of the board, "will not be speaking with investors until after the upcoming stockholder vote" on the proposed transaction.
Frontier said that's not the case. "As you would expect, we are actively engaging with our shareholders ahead of our Nov. 13 special meeting, and are always open to hearing their feedback," a Frontier spokesperson said in an emailed statement.
Analysts weigh in on the deal
Investor pushback is not surprising. New Street Research suggested last month that the proposal was in for a rocky ride and faced a distinct possibility that the price could go up amid pressure from shareholders.
"We have been urging the Frontier shareholders to reject the deal at $38.50 and ask for a higher price. We have shown that the deal is accretive to Verizon shareholders with conservative synergies up to a price of $71," New Street Research analyst Jonathan Chaplin said in an emailed note issued today.
Other analysts aren't wild about the deal, but for different reasons. MoffettNathanson and KeyBanc analysts have argued that acquiring Frontier is a poor use of capital by Verizon and that the size of Frontier's fiber footprint is too small to move the needle on Verizon's wireline/wireless convergence strategy.
News of investor static regarding the proposed deal had little impact on Verizon and Frontier shares. Frontier shares were up 1.7% and Verizon shares were up 1.25% in Tuesday morning trading.
Editor's note: The story has been updated with a statement from Frontier.
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