The U.S. telecommunications giant Verizon has agreed to acquire the fiber optic provider Frontier Communications in an all-cash transaction worth $20 billion. The goal of the acquisition is to expand Verizon's network in the U.S. and strengthen its competitive position.
Verizon, one of the three largest telecommunications companies in the U.S., stated on Thursday that the deal would "significantly expand its fiber presence across the country" and enable it to offer faster broadband services to more customers.
The acquisition of Frontier, which is based in Dallas and serves 2.2 million fiber subscribers in 25 states, will significantly increase Verizon's market share in the broadband sector. The company currently has about 7.4 million fiber connections in nine states as well as Washington DC.
Verizon's CEO Hans Vestberg described the acquisition as a "strategic move" to become more competitive in more U.S. markets. "The acquisition of Frontier enables us to play a larger role in even more markets and to expand both fiber and mobile services," he added.
The acquisition takes place amid hot competition in the US fiber optic market. Competitors such as T-Mobile have also announced strategic joint ventures with private equity firms like EQT and KKR this year to expand their networks through acquisitions.
According to Jonathan Chaplin, an analyst at New Street Research, the US market is increasingly moving towards a convergence of mobile and fixed broadband networks. "Verizon has been disadvantaged so far by its limited fiber presence, but the deal significantly improves their position," he said.
Verizon pays $38.50 per share for Frontier, representing a 44 percent premium over the volume-weighted average price of the last 90 days.
Frontier CEO Nick Jeffery was confident: "We are convinced that this offers a significant premium to our shareholders while simultaneously creating exciting new opportunities for our employees and expanding access to reliable connectivity.
Verizon expects to achieve annual cost savings of at least USD 500 million by the third year through the deal. Citi analysts described the acquisition as "industrially sensible," but warned that competitors like T-Mobile or AT&T might submit competing bids.
Frontier Communications filed for bankruptcy protection in 2020 and emerged from insolvency in 2021 after reducing debts amounting to 10 billion USD. The completion of the transaction is expected in approximately 18 months.
