The US’ leading mobile operator, Verizon, has announced two separate deals with DTH provider Frontier Communications and American Tower worth a total US$15.54bn.
The telco has agreed to sell its wireline operations in Texas, Florida and California to…
The US’ leading mobile operator, Verizon, has announced two separate deals with DTH provider Frontier Communications and American Tower worth a total US$15.54bn.
The telco has agreed to sell its wireline operations in Texas, Florida and California to Frontier for US$10.54bn, including US$600m in assumed debt, to focus on its East Coast operations, Verizon said in a statement.
The company has also leased the rights to 11,324 wireless towers and sold an additional 165 towers to American Tower for US$5bn. The towerco will have the right to use the towers for 28 years with a call option after the lease expires.
Verizon’s chairman and CEO, Lowell McAdam, said in a conference call yesterday that the proceeds from the transactions will be used to invest in network and spectrum, de-lever the balance sheet and return value to shareholders.
“Our long-standing strategy has been to consistently invest in our networks, improve our customers’ experience, and develop new products and services while delivering profitable growth.
“These transactions will further strengthen Verizon’s focus on extending our industry leadership position in our core markets and return significant value to our shareholders,” McAdam said.
Both deals are subject to regulatory approvals. Verizon expects to close the Frontier sale by the first half of 2016, while the American Tower transaction is due to be completed by H1 2015.
Credit Suisse, Guggenheim Securities and PJT Partners advised Verizon on the divestment. Frontier mandated JP Morgan as lead financial and strategic adviser, and Skadden, Arps, Slate, Meagher & Flom as legal counsel. Greenhill provided advisory to Frontier’s board.
The company has also announced a US$5bn-worth share repurchase plan.
The megadeal will allow the highly-leveraged telco to “free up capital and allocate it to other growth areas of the business,” its CEO said.
Last month, Verizon bid US$10.4bn for 181 licences, covering 61% of the territory, in the country’s latest AWS-3 spectrum auction.
The airwave tender kicked off last November and closed on 29 January, raising a record US$44.9bn in provisional bids. Payments for the acquired spectrum are due in the coming weeks, prompting bidders to boost their war chests before settling the bill. Earlier this week, rival AT&T, which bid US$18.2bn in the auction, was rumoured to be divesting US$2bn worth of data centres to pay down debt and fund acquisitions.
New York-based Verizon has also been striving to reduce its debt burden, which stood at US$113.3bn as of 31 December 2014, as a result of its US$130bn acquisition of Vodafone’s 45% stake in Verizon Wireless last February.
Verizon’s wireline assets generated more than US$5.7bn in revenues, Frontier said in a separate statement.
As a result of the deal, the rural broadband provider expects US$525m in cost reduction in the first year and US$700m in the third year. The company will also receive a US$1.9bn tax benefit as part of the agreement.
“These Verizon properties are a great strategic fit for Frontier that deliver immediate value to our shareholders, improve Frontier’s financial profile and leverage our confidence in the wireline space.” Frontier CEO Maggie Wilderotter said in a conference call.
She added that the properties align with Frontier’s disciplined strategic focus and enhance its footprint with rich fibre-based assets.
The Connecticut-based triple-play operator will finance this acquisition with a combination of equity and equity-linked securities, as well as debt. Frontier will receive bridge financing from JP Morgan, BofA Merrill Lynch and Citibank.
Frontier struck a similar deal with Verizon in May 2009, when it acquired residential and small-business access lines across 14 US states for US$8.6bn. Last October, it also completed the acquisition of AT&T’s wireline business, state-wide fibre network, and U-verse operations in Connecticut for US$2bn.
American Tower said in a statement that it will finance the deal “in a manner consistent with maintaining its investment grade credit rating” and has secured financing from Goldman Sachs, which also acted as financial adviser.
Jim Taiclet, American Tower’s CEO, said: “By acquiring access to this high quality asset base, American Tower will be well positioned to capture incremental leasing activity and extend our ability to drive strong annual organic core growth and solid AFFO per share growth, well into the future.”
The towerco claimed that by aggressively marketing these “relatively under-utilised towers” to additional tenants, it will enable faster deployment of this spectrum, accelerating the expansion of broadband coverage throughout the US.
The company estimates that the Verizon tower portfolio will generate approximately US$410m in domestic rental and management revenue, as well as US$235m in gross margin.
New Street Research analyst Jonathan Chaplin said the deal represents a shift on American Tower’s strategy. He believes that the company could generate better returns by investing internationally rather than overpaying for assets in the US.
“We are wary that this is a signal that their international prospects may be dimming,” he said in a note.
