- This week is the scheduled meeting when Frontier stockholders will vote whether to sell to Verizon
- Several big investors have said they’ll vote against the deal
- The analysts at TD Cowen say Frontier might be better off selling its assets in smaller chunks
Frontier shareholders will vote this Wednesday whether to sell the company to Verizon for $38.5 per share, and there’s a good chance that they will elect not to sell. If that turns out to be the case, the analysts at TD Cowen speculate that Frontier may consider selling a portion of the company to create a value marker. They said that Frontier’s Texas assets would be a prime opportunity.
Several institutional investors say they’ll vote against the sale this week, while others are urging stockholders to abstain from voting, which has the same result as voting “no.”
There are still two days before the shareholders’ meeting, and perhaps Verizon will raise its offer before the deadline.
Meanwhile, the analysts at TD Cowen are predicting that if the deal falls apart, Frontier will need to attract more bidders to create a competitive sales process.
“We think that Frontier’s Texas assets alone could have multiple interested parties,” wrote the analysts in a note to investors. They think that AT&T might be interested in Frontier’s Texas assets because AT&T is based in Dallas and still has a “robust Texas footprint.” T-Mobile might also be interested since the Texas assets would fit within its $20 billion of M&A capacity, whereas the entire Frontier purchase did not.
Or, they speculate, Bell Canada might be interested in “further embracing U.S. fiber-to-the-home,” given that it just announced last week that it’s purchasing Ziply, a fiber provider in the Northwest U.S. The TD Cowen analysts think that Bell Canada may have put in a bid for the whole of Frontier but was beat by Verizon’s bid.
They also note that if the current deal between Verizon and Frontier falls through, Verizon may still bid in a follow-up round. And there might also be private equity players interested in a smaller deal, such as the Texas assets.
“Demand from multiple players should drive a bidding war, leading to a strong valuation,” wrote the analysts.
Perhaps Frontier is too big for most pocketbooks
A note from New Street Research today seems to support the thesis that smaller chunks of Frontier might garner a higher price than the company sold as a whole.
New Street says its clients are asking why Bell is paying substantially more for Ziply than Verizon is paying for Frontier. Based on New Street’s math, Bell is paying $3,800 per fiber location, while Verizon is paying $2,400 per fiber location. So why the disparity?
“The primary difference is simply size,” wrote the analysts. Verizon is offering to pay about $20 billion for Frontier.
Ziply is only about 17% the size of Frontier, making it much easier for Bell to purchase, whereas Frontier would have been a very large transaction for Bell. The New Street analysts speculate that Bell Canada’s balance sheet capped its bidding for Frontier, while they could bid up to a value that is much closer to intrinsic value for Ziply.
Verizon still has time to sweep in and raise its price for Frontier before letting the deal potentially fail on Wednesday. The TD Cowen analysts recommend that Verizon bump up its current price by $5 per share. “We’d be hard-pressed to find a more lucrative ‘Plan B’ than this modest bump,” they wrote.
