On Thursday, September 5th, Eastern Time, American telecommunications giant Verizon announced that it would acquire fiber network provider Frontier Communications for $20 billion in cash, with the aim of expanding its customer base. The transaction is expected to be completed within 18 months. Through this acquisition, Verizon can better compete with rivals AT&T and T-Mobile, especially as they all increase their unlimited data plans and bundled services.
Verizon's acquisition offer for Frontier is $38.50 per share, which is a 37.3% premium over the closing price on September 3rd. September 3rd was the day before the news of this acquisition first emerged. Frontier is currently heavily indebted, with total debt reaching $11.25 billion as of June 30th of this year. Verizon plans to restructure this debt after the transaction is completed.
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Frontier has 2.2 million fiber customers across 25 states in the United States, while Verizon has approximately 7.4 million fiber customers in 9 states and the District of Columbia. This merger will bring the total number of locations covered by the fiber networks of both companies to 25 million, compared to AT&T's corresponding figure of 28 million.
Spurred by the acquisition news, Frontier's stock price surged nearly 38% on Wednesday, while Verizon's stock price fell about 4%. As of the time of writing, Frontier is currently trading at 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 to enhance competitiveness in more markets. Through this acquisition, Verizon will not only expand its customer base but also leverage Frontier's market coverage in key states such as the Midwest, Texas, and California to further expand its fiber network, which was originally mainly concentrated in the northeastern and mid-Atlantic regions of the United States.
The two companies have also conducted acquisition transactions in the past. As early as 2016, Verizon sold its television and internet business in California, Texas, and Florida to Frontier for $10.54 billion, a deal that also included a portion of the fiber network and customers.
Analysts believe that the help this acquisition will provide to Verizon is limited. According to MoffettNathanson analyst Craig Moffett, Verizon's fiber network covers less than 10% of the United States, and this acquisition will only increase its coverage by about 3%. In comparison, AT&T's fiber network covers less than 15%. Moffett described the impact of this acquisition as going from "small" to "slightly bigger small," but in terms of fiber business, Verizon still has a long way to go to achieve large-scale coverage through its fiber network.
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