May 13th, 2009

Verizon dishes off rural assets to Frontier in $8.6 billion deal

Posted by Larry Dignan @ 4:30 am

Categories: General, Telecommunications, Verizon

Tags: Asset, Verizon Communications Inc., Frontier Communications, Asset Management, Broadband Internet, Network Technology, Telecommunications, Operational Planning, Business Operations, Networking

Frontier Communications will acquire rural assets from Verizon in an $8.6 billion stock swap. 

The deal appears to be a win-win for both sides. Frontier becomes the largest “pure rural” communications provider with 7 million access lines, 8.6 million voice and broadband connections. Frontier will have 16,000 employees and operate in 27 states. Verizon unloads assets as it focuses on wireless, broadband and global services.

Verizon CEO Ivan Seidenberg said:

Longer term, this transaction is part of our multiyear effort to transform our growth profile and asset base to focus on wireless, FiOS fiber-optic services and other broadband development, and global IP. All of Verizon’s remaining local landline operations have high concentrations of FiOS in more densely populated markets.

The new Frontier would have annual revenue topping $6.5 billion and EBITDA of $3.1 billion. Here’s what the Frontier coverage will look like when the Verizon deal is done:

Among the moving parts outlined in a statement from Frontier (also see Verizon’s side):

• Verizon will spin off a new company called SpinCo and immediately merge it with Frontier. The tax free deal should be completed in 12 months. 
• 11,000 Verizon employees will become Frontier employees.
• Frontier, led by CEO Maggie Wilderotter, will run the company. Frontier said it will focus on bringing broadband services to rural markets. 
• Frontier expects to save about $500 million in annual expenses from the merger. Most of the savings will come from using Frontier’s existing network, IT infrastructure and corporate functions. 
• Verizon shareholders will ultimately get shares of Frontier (FTR) in the spin-off. Frontier will pay an annual dividend of 75 cents per share.
• The transaction does not include the services, offerings or assets of Verizon Wireless, Verizon Business (former MCI Inc.), Federal Network Systems LLC, Verizon Network Integration Corp., Verizon Global Networks Inc. and Verizon Federal Inc.