Verizon Communications Inc., (NYSE:VZ), has announced its plans to purchase Frontier Communications Parent Inc.
Frontier stock, however, fell by 10% in Thursday’s premarket trade, to $35.10.
The drop in the price of this deal indicates investor concern that it may be subject to regulatory hurdles.
Hans Vestberg addressed these concerns in an interview with CNBC. He stated that he is optimistic regarding the approval of this deal, even though regulatory scrutiny will be expected.
Vestberg said that Verizon’s premium fiber network expansion and the “great deal” for all parties involved made this acquisition a good strategic fit.
Highlights of the Deal
- Verizon will reach 25 million homes in 31 states, including Washington D.C.
- The transaction is valued at 20 billion dollars and will be expected to increase revenue as well as Adjusted EBITDA upon closure
- Cost synergies are projected to be at least $500M per year.
Does the Verizon-Frontier merger face any regulatory obstacles?
Vestberg described Frontier’s acquisition as an important strategic move which will expand Verizon’s reach in fiber networks.
The regulatory risks were minimized by the fact that the overlap between Frontier Fios and Verizon Fios is very minimal, allowing for a smoother approval process.
Verizon expects the acquisition to immediately increase revenue as well as EBITDA.
Integration costs may have a significant delay on the cash flow or earnings per share for a period of 12 months after closing.
Verizon believes that despite the costs initially incurred, the agreement will improve its financial prospects, and could even increase its stock price over time.
Verizon’s shares rose modestly following the news of its acquisition.
Analysts have mixed feelings about VZ-FYBR deal
Analysts are not as enthusiastic about the deal. While it positions Verizon to become the largest pure-play fibre internet provider in the US, they’re less excited.
Walter Piecyk, of LightShed Partners, expressed his doubts. He noted that, even after the acquisition, Verizon would still be lacking a home fiber broadband solution for over 80% in the US, and it will also continue to lag behind AT&T’s fiber network.
Craig Moffett, of MoffettNathanson, was more harshly critical. He called the deal an “absolutely atrocious” idea.
Moffett, in his research note, argues that, while this acquisition represents a good exit for Frontier Communications, it will do little to increase Verizon’s modest fibre footprint across the US.
The acquisition will not significantly alter Verizon’s position in the market, he said.
MoffettNathanson rates Verizon’s stock at “neutral”, with a $43 price target, indicating limited potential for growth.
Verizon is still attractive to income investors because of its 6.41% dividend yield.
Moffett set a price target of $30 for Frontier before the deal was announced. Frontier is now trading at a higher level, thanks to the news about the purchase.
The post Verizon’s $20B Frontier Deal Draws Criticism: Analysts Call It An Atrocious Idea may be updated as new information becomes available
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