Amid a rebirth of convergence-themed mergers in the telecom industry, Verizon Communications on Thursday said it will acquire Frontier Communications, the largest pure-play fiber internet provider in the U.S., in an all-cash deal valued at $20 billion. Verizon stock rose early.
"Wireless/wireline convergence seems clearly real as Verizon plays catch-up to AT&T," TD Cowen analyst Gregory Williams said in a report.
Williams added: "This summer, AT&T mentioned the word 'convergence' 18 times on its Q2 earnings call, while T-Mobile partially acquired both Lumos and Metronet."
Verizon said the Frontier deal is expected to close by late 2025. The acquisition is forecast to be accretive to revenue and adjusted earnings growth.
On the stock market today, Verizon stock edged up 1% to 41.86. The deal could further delay a Verizon stock buyback.
Verizon Stock: Wireless, Fiber Play
In 2024, Verizon stock had gained 10% as of Wednesday's market close. AT&T stock was up 22%. Verizon and AT&T are the two biggest providers of wireless phone services in the U.S., followed by T-Mobile.
"For Verizon, this would be a bold step in the direction of convergence … which is, in our view, an absolutely atrocious idea," MoffettNathanson analyst Craig Moffett said in a report. "Verizon's current fiber footprint covers but a small fraction of the U.S. And, Frontier wouldn't materially change that."
Moffett added: "There is simply no path forward for Verizon to cobble together a meaningful wireline coverage map, and a national wireless network basing its strategy on convergence with wireline fiber that is available to just a small fraction of American homes, with no conceivable path to broad coverage, is an awful strategy."
Bigger U.S. Fiber Footprint
Verizon will acquire Frontier for $38.50 per share, representing a 44% premium to its 90-day volume-weighted average share price on Sept. 3.
The acquisition would give Verizon a bigger fiber footprint across the U.S.
Frontier's 2.2 million fiber subscribers across 25 states will join Verizon's 7.4 million fiber optic network connections in nine states and Washington, D.C.
At TD Cowen, Williams added: "We are not sold on convergence. It often only works when you pick a side. That is, (cable companies are) giving away wireless with $30/line plans and taking far inferior margins in order to protect its coveted wireline business. Convergence could be destructive for the entire industry as players fight across the wireline-wireless landscape."
In 2016, Verizon sold wireline assets in California, Florida and Texas to Frontier for $10.5 billion. Also, a debt-laden Frontier restructured in 2020. Frontier emerged from Chapter 11 bankruptcy in 2021.
Verizon Stock: M&A Track Record
In 2021, Verizon unloaded its media group to private equity firm Apollo Global Management for $5 billion. The sale included former internet properties from AOL and Yahoo.
Verizon's most recent acquisition was the $6.25 billion purchase of Tracfone from Mexico-based America Movil in November 2022. Tracfone sells prepaid wireless services.
Further, convergence had been a rationale for telecom acquisitions in the late 1990s and early 2000s. In that case, phone companies were also competing with cable TV companies.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
