FTR-VZ Deal Gets Final Approval - Analyst Blog

Frontier Communication’s (FTR) pending acquisition of Verizon Communications’ (VZ) local wireline operations has received the final approval of the US telecom regulator, Federal Communications Commission (FCC). With this, the transaction has received all the necessary approvals as it has already secured clearances from the regulators in 9 states where Verizon is disposing its wireline assets to Frontier.

Frontier is buying 4.8 million landlines across 14 states from Verizon. As per the agreement, Verizon will receive $5.3 billion in Frontier common stock and $3.3 billion in cash from a future debt offering. Verizon holders will own 68% of Frontier after the transaction. The transaction is expected to close on July 1, 2010.

After the deal is completed, Frontier will increase broadband deployment and deploy high speed lines to anchor institutions such as libraries, hospitals and government buildings in un-served and under-served communities. It agreed to deploy high-speed Internet with speeds of at least 3 megabits per second (Mbps) downstream to at least 85% of transferred lines by the end of 2013, and increase the speed to at least 4 Mbps downstream by the end of 2015.

Frontier will emerge as a stronger company tripling in size, which makes it the largest rural-only service provider in the United States. The transaction will boost earnings and provide cost synergies of approximately $500 million, which will help to improve the company’s profitability and free cash flow generation.

Verizon stated that the deal will allow it to accelerate its focus on wireless, broadband and global IP networks for its customers. Moreover, it will enable the carrier to focus more on densely populated markets.

Further, the board of directors of Frontier recently 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 a 60-70% return for its shareholders in the form of dividend based on healthy free cash flow expectations.