Frontier Urges Shareholders to Accept Verizon’s $20 Billion Offer

WASHINGTON, Oct. 25, 2024 – Frontier Communications is pushing back against critics who argue the company is worth more than Verizon’s proposed $20 billion acquisition offer.

In a presentation shared with investors, Frontier directly addressed Friday recent assessments by New Street Research that suggested that Verizon’s offer undervalued the company’s assets and future growth potential.

New Street estimated Frontier’s value at $64 per share, but Frontier believes that number is inflated by about $1.9 billion in overstated cash flows, bringing the real value closer to $27 per share. Verizon made an offer in September of $38.50 per share.

On Wednesday, Frontier’s Strategic Review Committee and Board, which includes Frontier CEO Nick Jeffery, urged shareholders to accept the $20 billion buyout from Verizon, warning of potential risks if the deal is not approved.

They stated, “There are no assurances regarding how Frontier will perform operationally and financially as a standalone company” or “whether Verizon might return with another offer.” Additionally, the board highlighted uncertainty around “whether any alternative buyer might surface” or whether another competitive bidding process could take place.

The warning from Frontier’s board came in response to a letter from Glendon Capital Management, which owns around 10 percent of shares in the company. Glendon claimed the company is worth at least $26 billion – 30% more than Verizon’s $20 billion offer.

Last week, Australian global investment manager Cooper Investors Pty Limited similarly penned a letter to Frontier’s board of directors, asking for the board to oppose Verizon's acquisition.

Frontier is pushing back on undervaluation claims, pointing out that analysts, including New Street Research, have consistently overestimated its value. The presentation showed historical price targets from New Street that are well above both Frontier’s actual stock price as well as above the consensus price targets from other analysts.

Frontier also disputed New Street’s suggestion that Frontier should be valued similarly to Charter Communications, pointing to key differences in subscriber numbers and profitability. 

Charter has a 55% penetration rate compared to Frontier’s 30%, and Charter generates significantly more EBITDA per passing – $384 vs. $198. Frontier said it would need to spend an extra $2.6 billion to achieve Charter’s metrics, making a comparison unfair.

If Frontier backs out, it faces a $320 million break up fee, while Verizon would incur a $590 million penalty if it decides to walk away.