(Bloomberg) -- Verizon Communications Inc. agreed to buy rival telecommunications operator Frontier Communications Parent Inc. for about $9.59 billion as the New York phone giant looks to expand its high-speed internet business.
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Frontier’s investors will get $38.50 a share, a 37% premium to the $28.04 closing price on Tuesday, the day before news of a pending deal came out, Verizon said in a statement on Thursday. The transaction values the Dallas-based company at $20 billion including debt.
Telecommunications companies like Verizon are bulking up on fiber assets to add capacity for customers’ surging data use as wireless revenue slows. The flow of data is expected to increase further as more companies adopt artificial intelligence. In July, T-Mobile US Inc. said it would invest $4.9 billion in a joint venture with private equity firm KKR & Co. to buy fiber-optic internet service provider Metronet.
The deal combines Frontier’s fiber network into Verizon’s portfolio of fiber and wireless assets, including its Fios offering. Over about the past four years, Frontier has invested $4.1 billion upgrading and expanding its fiber network. Its 2.2 million fiber subscribers across 25 states will join Verizon’s nearly 7.4 million Fios customers in nine states and Washington DC. Verizon plans to build out an additional 2.8 million fiber locations by the end of 2026, adding to Frontier’s 7.2 million sites, the companies said.
Verizon Chief Executive Officer Hans Vestberg said the takeover will allow the company to “become more competitive in more markets” in the US.
The move by Verizon “would mark a much deeper commitment to a fiber broadband strategy and future-proof its high-speed internet footprint with the best long-term medium for delivering the service,” Bloomberg Intelligence analyst John Butler wrote Wednesday after news reports of a pending acquisition. “A deal would put Verizon’s consumer fiber subscribers ahead of rival AT&T by lifting its base to 9.1 million vs. the latter’s 8.8 million.”
Frontier shares had surged 38% on Wednesday after the Wall Street Journal first reported that the companies were in talks for a deal. They were down 9.6% in premarket trading on Thursday at $34.98, below the sale price. Verizon was little changed.
The boards of Verizon and Frontier have approved the deal, which is expected to close in about 18 months if shareholders and regulators agree to it. Verizon also reaffirmed its full-year guidance in the statement.
Frontier initiated an internal review of its business earlier this year. The company has faced pressure from activist investor Jana Partners to improve its returns. It reported sales of $5.8 billion in 2023, with about 52% of total revenue from activities related to its fiber-optic products.
In 2015, Verizon sold parts of its landline phone business in California, Florida and Texas to Frontier for $10.54 billion. Frontier filed for Chapter 11 bankruptcy in 2020 as debt piled up after years of losses in its wireline telecom business. It emerged from bankruptcy the following year and focused on building out its fiber network to better compete against cable and wireless companies.
(Updates with detail on customers in fourth paragraph and analyst comment in sixth paragraph.)
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