Verizon inks $20 billion Frontier deal

Just hours after some serious takeover rumours took hold, Verizon announced that it will pay $38.50 per share in cash for Frontier, a figure that represents a huge 43.7% premium on the target operator's 90-day average share price on its last trading day before it showed the impact of media reports.

The agreement values Frontier at the aforementioned $20 billion, including debt, but according to Bloomberg, Verizon will need to shell out around $9.59 billion for the shares.

That's a big chunk of change, but clearly Verizon thinks it's worth it in exchange for a part-built fibre network.

It notes that Frontier has spent $4.1 billion over four years in the upgrade and expansion of its fibre network. On paper, at least, the Verizon deal looks like a pretty good return. The additional value for Verizon comes in the form of time saved and a new 2.2 million-strong fibre customer base that will prove a significant addition to its existing 7.4 million Fios customers.

As it stands, Frontier has covered 7.2 million locations in 25 states with its fibre network and as far as we knew was working towards a 10 million target by the end of 2025. However, Verizon's announcement indicates that Frontier remains committed to reaching that figure by end-2026, which suggests that although the build will continue, the goalposts have shifted slightly.

That makes sense; Frontier would have struggled to hit 10 million next year at current build rates, even taking into account an accelerated rollout of 388,000 new premises in the most recent quarter.

And this deal is really all about network building.

"This strategic acquisition of the largest pure-play fibre internet provider in the US will significantly expand Verizon's fibre footprint across the nation, accelerating the company's delivery of premium mobility and broadband services to current and new customers," Verizon said, putting the rationale for the deal front and centre in its announcement.

"It will also expand Verizon's intelligent edge network for digital innovations like AI and IoT," it added...because in the current telecoms market it would be something of a faux pas not to mention AI somewhere.

As well as talking up Frontier's progress to date in building out its fibre infrastructure, its CEO Nick Jeffery described the deal as "a vote of confidence for the future of fibre," and that's probably an accurate point, given the way the market is playing out in the US.

The big three mobile operators are all now focusing on fibre – AT&T through organic growth and T-Mobile US via its recently-announced acquisition of Metronet – and this deal will give Verizon a leg up in the market.

As it pointed out, it will be able to target Frontier customers, and those previously outside its footprint, with its own offers, as well as bringing together Frontier's broadband offering with its mobile services. There are also benefits of scale, including in distribution; Verizon said it expects to realize at least $500 million in run-rate cost synergies by year three from benefits of increased scale and distribution and network integration. And, of course, Verizon stands to increase its share of the US broadband market.

All of the above assumes that the deal actually goes through. The companies need Frontier shareholders to give it the go-ahead and they will also have to secure various regulatory clearances.

They expect it to close in approximately 18 months, which is not a particularly short timeframe. Perhaps they are anticipating a few bumps in the road.