Frontier Communications‘ (FTR) pending acquisition of Verizon Communications (VZ) local wireline operations was at last approved by the Public Service Commission (PSC) of West Virginia. With this, the company has received all the required state approvals for the transaction.
The deal has now passed a major obstacle — it was opposed by the Communications Workers of America (CWA) in West Virginia. The CWA feared that the transaction is detrimental to the state’s interest and may lead Frontier to a severe financial crunch.
West Virginia is the ninth and final state to approve the deal, after the required approvals from Arizona, California, Illinois, Nevada, Ohio, Oregon, South Carolina and Washington. The pending acquisition is at present in the sole hands of the Federal Communications Commission (FCC), as it has already received various anti-trust approvals from Washington. The transaction is expected to close by the end of the second quarter of 2010.
As per the agreement, Verizon will receive $5.3 billion in Frontier common stock, plus $3.3 billion in a combination of cash, debt and assumption of previous debt issued by Verizon subsidiaries. Verizon holders will own 68% of Frontier after the transaction.
Frontier is expanding its broadband network in the rural/underprivileged markets in West Virginia. It agreed to spend $231 million to improve West Virginia’s wireline network as well as $48 million to increase broadband availability in the state by 2013.
After the transaction, Frontier will emerge as a stronger company and is expected to achieve cost synergies of approximately $500 million from the transaction, which will help to improve the company’s profitability and free cash flow generation. Additionally, this will create opportunities for revenue growth through expanded broadband penetration, attractive bundled service offerings and improved customer retention.
Further, the Board of Directors of Frontier declared a quarterly cash dividend of 25 cents per share, payable on June 30, 2010. Frontier remains committed to its aggressive dividend policy as it targets offering 60-70% return to its shareholders in the form of dividend based on healthy free cash flow expectations.
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