2 weeks Ago
With two days until the approval vote from shareholders, Verizon’s proposed acquisition of Dallas -based internet provider Frontier Communications is coming down to the wire. On Nov. 13, Frontier’s stockholders will decide whether to approve a $20 billion, all-cash acquisition deal which Verizon announced on Sept.
3 . Verizon plans to buy Frontier, which brings with it a vast fiber network, for $38.50 per share, around a 45% increase on the pre-announcement share price, Verizon said.
In the days leading up to the announcement, Frontier was trading at $29 a share; Monday it traded for $35. There’s a problem, though. As the vote has drawn nearer, several major shareholders in Frontier have said the price isn’t high enough, according to a release from Frontier last Thursday.
The two most influential proxy advisory firms in the U.S. recommended shareholders “abstain” from voting for the acquisition.
Frontier views abstention as “effectively a vote against the deal,” per the release. On Oct. 23, Glendon Capital Management, a private investment firm that owns nearly 10% of Frontier’s outstanding shares, sent a letter to Frontier’s board of directors opposing the acquisition.
Though Glendon recognized the strategic merits of combining with a large wireless provider, it said the sale price per share “substantially undervalues the Company’s existing assets and the future upside potential that rightfully belongs to Frontier shareholders.” Glendon pointed to a joint venture by T-Mobile and investment firm KKR to acquire fiber internet provider Metronet in July. Upon announcing the acquisition , T-Mobile said it would invest $4.
9 billion for a 50% stake in Metronet. Metronet had 2 million fiber passings at sale compared to Frontier’s 7.6 million, essentially a measure of how many potential customers a fiber company’s existing infrastructure passes.
Glendon said the Metronet deal indicates that Frontier should be be valued at $26 billion at a minimum. Carronade Capital, which owns 2 million Frontier shares, agrees, releasing a letter to fellow shareholders on Oct. 21 urging them to vote against the acquisition.
“Frontier has an intrinsic value of at least $48.60 per share on a standalone basis — and that is before a fair share of the unique synergy value this transaction brings to Verizon,” the letter said. Meanwhile, another investor, Cerberus Capital, shed over 6 million shares of Frontier in the two days following the acquisition announcement, according to a filing with the Securities Exchange Committee.
It still owns 18 million. Carronade and Glendon both criticized what they characterized as a rushed vote on the acquisition. Glendon’s letter indicated that Frontier set the voting date, which comes just a week after their third-quarter earnings report, before announcing the transaction.
Glendon called this “both perplexing and disappointing,” and “disenfranchising to shareholders.” Now, the vote is fast approaching, and last week proxy advisors ISS and Glass Lewis have reportedly recommended shareholders abstain. Their words carry a heavy weight, as the nation’s two largest proxy advisors, firms that provide investment companies with research and recommendations on shareholder proposals.
The revelation comes via a public response Frontier gave to the recommendations Nov. 7 . In the release, Frontier said its board “unanimously and unequivocally” believes the Verizon acquisition to be in the best interest of shareholders and urges shareholders to vote in favor.
What’s more, Frontier says it has been in communication with Verizon and “has received every indication that there will be no change” to the sale price. Should the sale fall through, Frontier says it will revert to a “standalone plan.” When the deal was first announced, an Axios report highlighted the lack of a voting agreement between Verizon and Frontier’s largest shareholders.
Often, buyers will secure agreements to vote in favor of merger approval from their target company’s largest shareholders to ensure the deal actually goes through. Axios reported then that the lack of such an agreement could indicate one of two things: Verizon was confident the deal would be approved or they tried to get an agreement and failed. The former now appears unlikely, but the second could mean shareholders are hoping for a higher bid from Verizon — or elsewhere.
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