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Stamford, Conn.-based rural telecommunications provider Frontier Communications Corp. has agreed to acquire approximately 4.8 million access lines in 14 states across the country from Verizon Communications Inc. in an all-stock deal valued at $8.6 billion.
The transaction will create the largest pure rural communications services provider and the nation’s fifth largest incumbent local exchange carrier (ILEC), according to a statement from the companies. The new entity will offer more than 7 million access lines, 8.6 million voice and broadband connections and 16,000 employees in 27 states.
Under terms of the agreement, Verizon (NYSE: VZ) will establish a separate newly formed entity called SpinCo, which will hold the access lines included in the deal. SpinCo will be spun off to Verizon’s shareholders and simultaneously merged with and into Frontier (NYSE: FTR). The transaction has been approved by the boards of directors of Frontier and Verizon, and it is expected to be completed within approximately 12 months, according to officials.
Taking financial data from both entities, for the fiscal year ended 2008, the combined company would have had revenue of more than $6.5 billion, with earnings of approximately $3.1 billion. Frontier officials expect to achieve cost synergies of approximately $500 million annually, representing 21 percent of 2008 SpinCo cash operating expenses. These cost savings are expected to come from using Frontier’s existing network and IT infrastructure and its corporate administrative functions, according to a company statement, indicating that there will be some layoffs.
The territories covered by the deal span the nation, with lines in Arizona, California, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, Wisconsin and West Virginia. Those lines add to Frontier’s current offering, which provides phone, video, Internet and broadband services to more than 2 million customers in 24 states, including 11 states that are part of the Verizon acquisition.
The Verizon properties in the deal include approximately 4.8 million access lines, with 1 million High-Speed Internet customers, 2.2 million long-distance customers, 164,000 DirecTV customers and 69,000 FiOS video customers, according to company statements.
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