Frontier Deal Wins Key Approvals

Frontier Communications (FTR - Analyst Report), a leading telecom operator in rural and suburban areas in the US, has reportedly received approvals from the Public Utilities Commissions of the states of California and Neveda and Public Service Commission of South Carolina for its impending acquisition of the rural fixed-line business of Verizon Communications (VZ - Analyst Report).

Moreover, the acquisition was recently approved by the shareholders of Frontier. The transaction is now subject to approval by the Federal Communications Commission (FCC) and other closing conditions and is expected to close during the second quarter of 2010.

Verizon is divesting its rural fixed-line business (involving approximately 4.8 million access lines) in 14 states to Frontier under an agreement valued at approximately $8.6 billion. Under the deal terms, Verizon’s shareholders will receive approximately $5.25 billion in common stock of Frontier, equating to around 68% stake in the company.

Moreover, Verizon will also receive $3.3 billion in cash and debt securities from Frontier. The transaction, if successful, will provide Verizon’s shareholders a controlling interest in Frontier.

This deal represents a major opportunity for Frontier as the company remains significantly challenged by the beleaguered economic conditions in its service territories and contends with loss of legacy landline telephony business to wireless and other competitive offerings by cable TV operators such as Time Warner Cable (TWC - Snapshot Report). Frontier continues to experience decline in revenues which is, to a great extent, attributable to consistent sequential decline in fixed access lines.

The acquisition, if successfully consummated, will make Frontier the largest pure-play rural telecom operator with over 7 million access lines in 27 states. Additionally, this will offer opportunity for revenue growth through expanded broadband penetration, attractive bundled service offerings and improved customer retention.

Frontier may also achieve cost saving synergies of approximately $500 million from the Verizon transaction. Moreover, the deal represents an important stimulus to accelerate the deployment of broadband services to remote rural areas in the US.