Frontier Communications sale looking likely

The US fibre broadband provider announced that it is increasing the size of its board to 10 members with the appointment of Woody Young, former chairman of Mergers and Acquisitions at Perella Weinberg Partners.

The telco also took the opportunity to confirm that its board and management are working on a formal review process to identify, according to John Stratton, Executive Chairman of the Board of Frontier, "opportunities to unlock shareholder value, including continued optimization of our operational and financing strategy, strategic partnerships, joint ventures, divestitures, mergers, and business combinations."

Naturally, in the wake of a statement of that ilk, all thoughts turn to M&A. But this is more than just a gentle hint from Frontier.

"Woody Young has had a 30+ year career in investment banking, with extensive experience in telecommunications M&A," reads the first line of the bio it shared on its new director.

It goes on to point out that Young advised companies or "some of the most notable deals in the telecommunications sector," sharing AT&T's acquisition of Time Warner and the Sprint Nextel merger of almost 20 years ago. Putting aside what we now know with regard to how those transactions panned out, they were indeed telecoms mega-mergers and hammering out the details thereof was doubtless not a job for the faint hearted.

Frontier is keen to highlight that it has a number of options at its disposal, but a sale of some or all of its business is clearly a very real possibility.

There have been mutterings to that effect for some time. In December, for example, Reuters had sight of a letter from activist investor Jana Partners calling for a strategic review, to include the evaluation of a possible sale of the company.

In the letter the firm's two managing partners Barry Rosenstein and Scott Ostfeld apparently indicated that they had spoken with possible buyers. They did not name them, but noted that they included both strategic and financial buyers.

Frontier's share price was not looking too healthy for much of last year, hence Jana Partners' interest both in buying into the company and in encouraging a sale. The stock has ticked upwards since October, but talk of a depressed valuation could still attract an investor keen to grab a decent deal in the infrastructure space.

It's more fun to speculate on potential strategic buyers though, and there are plenty of US telcos that could see a lot to like in a company that has been pushing hard on fibre rollout for the past few years.

Frontier aims to pass 10 million homes with fibre by the end of next year and as of Q3 last year was at 6.2 million. Its 2023 outlook guides for 1.3 million fibre build locations during the full year; presuming it hit that target, Frontier had 6.5 million at year-end; we'll find out when it posts full-year financials later this month.

That's a sizeable footprint, although with a build rate that has come in just above above the 1 million mark for the past two years, Frontier will have to pull its finger out to reach its end-2025 target.

There are certainly telcos out there for whom that fibre footprint could prove attractive.

The big three – AT&T, Verizon and T-Mobile US – will naturally be mentioned the most often. Of them AT&T seems the most likely candidate; just over two years ago it brokered a deal to use Frontier's fibre network to extend its reach for business customers in areas in which it has no infrastructure of its own or indeed plans to build.

Doubtless new director Woody Young already has some opinions of his own on how he would like to see it all unfold.