Premier Provider of Voice, Broadband and Video Services
27 States and More Than 7 Million Access Lines
Combined Annual Revenue of $6.5 Billion
Combined Annual EBITDA of $3.1 Billion
Annual Expense Synergies of $500 Million
Free Cash Flow Accretion in Year 2
Strong Balance Sheet
Attractive Payout Ratio
Platform for Future Growth and Consolidation
STAMFORD, Conn.--(BUSINESS WIRE)--
Frontier Communications Corporation (NYSE: FTR) today announced that it
has signed a definitive agreement with Verizon Communications Inc.
(NYSE: VZ) under which Frontier will acquire approximately 4.8 million
access lines from Verizon. The all stock transaction is valued at
approximately $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) with more than 7 million access
lines, 8.6 million voice and broadband connections and 16,000 employees
in 27 states. Frontier will offer broadband, new bundled services and
expanded technologies to customers across its expanded geographic
footprint.
Under the terms of the agreement, Verizon will establish a separate
newly formed entity ("SpinCo") for its local exchanges and related
business assets in 14 states. SpinCo will be spun off to Verizon's
shareholders and simultaneously merged with and into Frontier. The
transaction has been approved by the Boards of Directors of Frontier and
Verizon, and is expected to be completed within approximately 12 months.
The transaction is extremely compelling for all stakeholders of
Frontier. It will provide Frontier with enhanced scale and scope,
improved positioning, a strong balance sheet, and greater cash flow
generation capabilities. For the fiscal year ended 2008, the combined
company would have had on a pro forma basis revenue in excess of $6.5
billion, EBITDA of approximately $3.1 billion, free cash flow of
approximately $1.4 billion and would have had leverage of 2.6 times
EBITDA at December 31, 2008.
Maggie Wilderotter, Frontier Communications Chairman and Chief Executive
Officer, said, "This is a truly transformational transaction for
Frontier. With more than 7 million access lines in 27 states, we will be
the largest pure rural communications provider of voice, broadband and
video services in the U.S. Frontier is committed to providing our
customers with state-of-the-art technology and innovative products. We
are confident that we can dramatically accelerate the penetration of
broadband in these new markets during the first 18 months. We know that
broadband is a catalyst for a healthy local economy and job growth."
"We have a track record of successfully integrating new operations and
know that a seamless transition benefits customers and employees.
Frontier and Verizon have gone to great lengths to ensure that the
transaction will be well-executed. We will focus on execution, as well
as on improving operations, delivering new products and services and
achieving synergy targets. This transaction makes us a larger and an
even stronger company, with significantly greater free cash flow
generation capability. This acquisition will benefit the communities we
serve, increase opportunities for employees and allow us to continue to
deliver world-class profit margins and revenue growth for shareholders,"
continued Ms. Wilderotter.
Ivan Seidenberg, Chairman and Chief Executive Officer of Verizon, said,
"This transaction is part of our multi-year effort to transform our
growth profile and asset base to focus on wireless, broadband, and
global IP. At the same time, it's an attractive way to unleash untapped
value for our shareholders. Frontier knows how to run wireline
communications services well and has a top-notch management team to take
these properties to the next level. I am confident the company will
provide the employees in these states with opportunities as it focuses
on growth and an expanded portfolio of products in those markets."
Benefits of the Transaction
-- Significant Revenue Opportunities:The transaction will create a company
with greater scale and scope. Frontier expects to achieve customer
revenue growth through improved broadband penetration, bundled service
packages to residential and small businesses, expanded long distance and
feature products, improved customer retention, and new product
offerings.
-- Substantial Synergies:Frontier expects to achieve cost synergies of
approximately $500 million annually, representing 21% of 2008 SpinCo
cash operating expenses. These cost savings are expected to come from
leveraging Frontier's existing network and IT infrastructure and its
corporate administrative functions.
-- New Dividend Policy:After the close of the transaction, the company will
pay an annual dividend of $0.75 per share to its shareholders,
representing an attractive and sustainable payout ratio. Based on
Frontier's $7.57 closing stock price on May 12, 2009, this dividend
represents an annual yield of approximately 9.9% to Frontier
shareholders. This dividend policy will allow the company to invest in
the acquired markets, offer new products and services, and extend and
increase broadband capability to those markets over the next few years.
-- Strong Financial Profile:Upon close of the transaction, Frontier will
have significantly enhanced financial flexibility with decreased
leverage of 2.6 times combined 2008 pro forma EBITDA, a very sustainable
dividend payout, and a commitment to achieve an investment grade credit
rating. The transaction is anticipated to be free cash flow accretive in
the second full year of operation, growing to double-digit accretion in
the third year and beyond.
-- Strong Platform for Continued Growth: Frontier will generate
approximately $1.4 billion of combined pro forma 2008 free cash flow and
be positioned for future investments in new products, technologies and
acquisitions.
Details of the Transaction
Verizon will establish a separate entity (SpinCo), which will hold the
local exchange and related business assets in the 14 states that are the
subject of the transaction. SpinCo will carry approximately $3.333
billion of debt consisting of a combination of newly issued debt as well
as assumed debt already issued by entities that are being contributed to
SpinCo. Verizon will receive approximately $3.333 billion of cash or
debt relief. Verizon will then spin off SpinCo pro rata to its
shareholders and SpinCo will immediately merge with and into Frontier.
Verizon's shareholders will receive shares of Frontier common stock in
connection with the merger in an amount to be determined at closing,
which is expected to have a value of approximately $5.25 billion.
The exact number of shares to be issued by Frontier will be determined
based on Frontier's 30-day weighted average closing share price ending 3
trading days prior to closing, subject to a collar such that in no case
will the Frontier common stock price, for the purpose of determining the
number of shares of Frontier common stock to be issued to Verizon
shareholders at closing, be lower than $7.00 or higher than $8.50.
Depending on the trading prices of Frontier shares just prior to the
closing, upon the closing of the transaction, Verizon shareholders will
own between approximately 66 and 71 percent of the new company, and
Frontier shareholders will own between approximately 29 and 34 percent.
Verizon will not own any shares in Frontier after the merger. Both the
spin-off and merger are expected to qualify as tax-free transactions,
except to the extent that cash is paid to Verizon shareholders in lieu
of fractional shares.
Frontier will acquire Verizon access lines in Arizona, California,
Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio,
Oregon, South Carolina, Washington, Wisconsin and West Virginia.
Frontier currently provides phone, video, Internet and broadband
services to more than 2 million customers in 24 states, including 11 of
the states that are part of the agreement announced today. The Verizon
properties include approximately 4.8 million access lines, with 1.0
million High-Speed Internet customers, 2.2 million long-distance
customers, 164,000 DirecTV customers and 69,000 FiOS video customers.
Leadership, Approvals and Timing
The combined business will be managed by Frontier's existing executive
team, led by Maggie Wilderotter. The company's headquarters will be in
Stamford, Connecticut.
The transaction is subject to approval by Frontier shareholders and the
satisfaction of customary closing conditions and regulatory approvals,
and the obtaining of financing by SpinCo. The transaction is expected to
be completed within approximately 12 months.
Advisors
Citi and Evercore Partners acted as financial advisors to Frontier and
Cravath, Swaine & Moore LLP acted as legal advisor.
Conference Call Information
Frontier will host a conference call with financial analysts at 8:30
a.m. Eastern (5:30 a.m. Pacific) today to discuss this announcement.
Financial analysts are invited to participate in the call by dialing
877-681-3375 (access code 9144157) at Frontier 15 minutes before the
call. Those calling from outside North America should dial 719-325-4900
(access code 9144157). Replays will be available for one week at
888-203-1112 (access code 9144157) from within North America and at
719-457-0820 (access code 9144157) from outside North America. Media and
other interested individuals are invited to listen to the live broadcast
on the company's website.
NOTE: To access an investor presentation, fact sheet and map
related to the transaction, please visit the Investor Relations section
of Frontier's website at www.frontier.com/ir.
About Frontier Communications
Frontier Communications Corporation (NYSE:FTR) offers telephone, video
and internet services in 24 states with approximately 5,600 employees.
More information is available at www.frontier.com.
Forward-Looking Language
This press release contains forward-looking statements that are made
pursuant to the safe harbor provisions of The Private Securities
Litigation Reform Act of 1995. These statements speak only as of the
date of this press release and are made on the basis of management's
views and assumptions regarding future events and business performance.
Words such as "believe," "anticipate," "expect" and similar expressions
are intended to identify forward-looking statements. Forward-looking
statements (including oral representations) involve risks and
uncertainties that may cause actual results to differ materially from
any future results, performance or achievements expressed or implied by
such statements. These risks and uncertainties are based on a number of
factors, including but not limited to: reductions in the number of our
access lines and high-speed internet subscribers; the effects of
competition from cable, wireless and other wireline carriers (through
voice over internet protocol (VOIP) or otherwise); reductions in
switched access revenues as a result of regulation, competition and/or
technology substitutions; the effects of greater than anticipated
competition requiring new pricing, marketing strategies or new product
offerings and the risk that we will not respond on a timely or
profitable basis; the effects of changes in both general and local
economic conditions on the markets we serve, which can impact demand for
our products and services, customer purchasing decisions, collectibility
of revenue and required levels of capital expenditures related to new
construction of residences and businesses; our ability to effectively
manage service quality; our ability to successfully introduce new
product offerings, including our ability to offer bundled service
packages on terms that are both profitable to us and attractive to our
customers; our ability to sell enhanced and data services in order to
offset ongoing declines in revenue from local services, switched access
services and subsidies; changes in accounting policies or practices
adopted voluntarily or as required by generally accepted accounting
principles or regulators; the effects of ongoing changes in the
regulation of the communications industry as a result of federal and
state legislation and regulation, including potential changes in state
rate of return limitations on our earnings, access charges and subsidy
payments, and regulatory network upgrade and reliability requirements;
our ability to effectively manage our operations, operating expenses and
capital expenditures, to pay dividends and to reduce or refinance our
debt; adverse changes in the credit markets and/or in the ratings given
to our debt securities by nationally accredited ratings organizations,
which could limit or restrict the availability and/or increase the cost
of financing; the effects of bankruptcies and home foreclosures, which
could result in increased bad debts; the effects of technological
changes and competition on our capital expenditures and product and
service offerings, including the lack of assurance that our ongoing
network improvements will be sufficient to meet or exceed the
capabilities and quality of competing networks; the effects of increased
medical, retiree and pension expenses and related funding requirements;
changes in income tax rates, tax laws, regulations or rulings, and/or
federal or state tax assessments; further declines in the value of our
pension plan assets, which could require us to make contributions to the
pension plan beginning in 2010, at the earliest; the effects of state
regulatory cash management policies on our ability to transfer cash
among our subsidiaries and to the parent company; our ability to
successfully renegotiate union contracts expiring in 2009 and
thereafter; our ability to pay a $1.00 per common share dividend
annually, which may be affected by our cash flow from operations, amount
of capital expenditures, debt service requirements, cash paid for income
taxes (which will increase in 2009) and our liquidity; the effects of
significantly increased cash taxes in 2009 and thereafter; the effects
of any unfavorable outcome with respect to any of our current or future
legal, governmental, or regulatory proceedings, audits or disputes; the
possible impact of adverse changes in political or other external
factors over which we have no control; and the effects of hurricanes,
ice storms or other severe weather. These and other uncertainties
related to our business are described in greater detail in our filings
with the Securities and Exchange Commission (SEC), including our reports
on Forms 10-K and 10-Q. There also can be no assurance that the proposed
transaction will in fact be consummated. We undertake no obligation to
publicly update or revise any forward-looking statement or to make any
other forward-looking statements, whether as a result of new
information, future events or otherwise unless required to do so by
securities laws.
Additional Information and Where to Find it
This press release is not a substitute for the prospectus/proxy
statement Frontier will file with the SEC. We urge investors to read the
prospectus/proxy statement, which will contain important information,
including detailed risk factors, when it becomes available. The
prospectus/proxy statement and other documents which will be filed by
Frontier with the SEC will be available free of charge at the SEC's
website, www.sec.gov,
or by directing a request when such a filing is made to Frontier, 3 High
Ridge Park, Stamford, CT 06905-1390, Attention: Investor Relations.
This communication shall not constitute an offer to sell or the
solicitation of an offer to buy securities, nor shall there be any sale
of securities in any jurisdiction in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of such jurisdiction.
Frontier and certain of its directors, executive officers and other
members of management and employees may, under SEC rules, be deemed to
be "participants" in the solicitation of proxies in connection with the
proposed transactions. Information about the directors and executive
officers of Frontier is set forth in the proxy statement for Frontier's
2009 annual meeting of stockholders filed with the SEC on April 6, 2009.
Source: Frontier Communications Corporation
Contact: Frontier Communications Corporation
Investors:
David Whitehouse, 203-614-5708
or
Media:
Steven Crosby, 916-206-8198