The US telecommunications industry's $20 billion mega-merger! Verizon seeks to cash acquire Frontier
US telecommunications company Verizon announced that it will acquire fiber network provider Frontier Communications for $20 billion in cash to expand its user base, strengthen its fiber network layout in the United States, and better compete with rivals AT&T and T-Mobile. This acquisition will increase Verizon's fiber user base from 7.4 million to a combined 9.6 million after the merger, covering 25 million locations, while AT&T covers 28 million. Analysts believe that this acquisition will provide limited help to Verizon, as there is still a long way to go for Verizon to achieve large-scale coverage through fiber networks
On Thursday, September 5th, Eastern Time, the U.S. telecommunications giant Verizon announced that it will spend $20 billion in cash to acquire the fiber network provider Frontier Communications, aiming to expand its user base, with the transaction expected to be completed within 18 months. Through this acquisition, Verizon can better compete with rivals AT&T and T-Mobile, especially as they both intensify their efforts in unlimited data plans and bundled services.
Verizon's offer to acquire Frontier is $38.50 per share, which is 37.3% higher than the closing price on September 3rd, the day before the news of the acquisition first surfaced. Frontier is currently heavily indebted, with total debt amounting to $11.25 billion as of June 30th this year. Verizon plans to restructure this debt after the transaction is completed.
Frontier has 2.2 million fiber optic users in 25 states across the U.S., while Verizon has approximately 7.4 million fiber optic users in 9 states and the District of Columbia. This merger will bring the total number of fiber optic network coverage locations for both companies to 25 million, compared to AT&T's 28 million.
Following the acquisition news, Frontier's stock price surged nearly 38% on Wednesday, while Verizon's stock price fell by about 4% at one point. As of writing, Frontier is currently trading around $35.10, slightly below Verizon's acquisition offer.
Verizon CEO Hans Vestberg stated that acquiring Frontier will bring strategic alignment to the company, helping it enhance competitiveness in more markets. Through this acquisition, Verizon will not only expand its user base but also leverage Frontier's market coverage in key states such as the Midwest, Texas, and California to further expand its fiber optic network beyond its original focus on the Northeast and Mid-Atlantic regions of the U.S.
The two companies have engaged in acquisition transactions before. As early as 2016, Verizon sold its TV and internet business in California, Texas, and Florida to Frontier for $10.54 billion, which also included a portion of the fiber optic network and users.
Analysts believe that this acquisition will provide limited assistance to Verizon. According to MoffettNathanson analyst Craig Moffett, Verizon's fiber optic network covers less than 10% of the U.S., and this acquisition will only increase its coverage by about 3%. In comparison, AT&T's fiber optic network covers less than 15%. Moffett described the impact of this acquisition as going from "small" to "slightly bigger small," but for Verizon to achieve large-scale coverage through fiber optics, There is still a long way to go