By Roger Cheng
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Frontier Communications Corp. (FTR) has a proven track record of integration, and should be able to quickly absorb Verizon Communications Inc.'s (VZ) rural assets, according to Frontier Chief Executive Maggie Wilderotter.
While the deal is structured as a tax-free spin-off and merger, Frontier will have to raise roughly $3.3 billion in funds through a debt offering, the proceeds of which will be paid to Verizon. Even though Frontier is raising debt, the acquisition of Verizon's assets allows the company to approach investment grade rating, she said during a conference call on Tuesday.
Verizon Chief Executive Ivan Seidenberg said he sees the deal creating value for both sides, noting that he expects approval to happen in a year.
Verizon has paid less attention to the rural areas as it focuses on wireless, FiOS and its global enterprise businesses. Chief Financial Officer Donald Shassian said he does expect revenue decline in the 3.5% to 4% range with the Verizon territories before the company takes over.
Wilderotter noted that the deal will be accretive to Frontier on a free cash flow basis by the second year, noting the $500 million in merger cost savings.
Further value could be created by building out high-speed Internet access to Verizon's territory, which could yield more revenue for the company, Wilderotter said.
"Rural America is our business," she said, noting the company's "manical focus on local."
One of the biggest integration hurdles is the conversion of billing systems from Verizon to Frontier. Wilderotter said she is confident that the conversion will be smooth. She added that ahead of the deal closing, Frontier will set up its products, promotions and offerings in the Verizon system.
"We can hit the ground running," she said.
Wilderotter said she doesn't foresee any problems with the unions representing the 11,000 Verizon employees moving to Frontier.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com
(Updates with additional executive comments)
By Roger Cheng
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Frontier Communications Corp. (FTR) has a proven track record of integration, and should be able to quickly absorb Verizon Communications Inc.'s (VZ) rural assets, according to Frontier Chief Executive Maggie Wilderotter.
While the deal is structured as a tax-free spin-off and merger, Frontier will have to raise roughly $3.3 billion in funds through a debt offering, the proceeds of which will be paid to Verizon.
Verizon Chief Executive Ivan Seidenberg on Wednesday said he sees the deal creating value for both sides, noting that he expects approval to happen in a year.
Verizon has paid less attention to the rural areas as it focuses on wireless, FiOS and its global enterprise businesses. Chief Financial Officer Donald Shassian said he does expect revenue decline in the 3.5% to 4% range with the Verizon territories before the company takes over.
Even though Frontier is raising debt, the acquisition of Verizon's assets allows the company to approach investment grade rating, Wilderotter said during a conference call on Wednesday. Shassian added that the company is changing its credit strategy in actively pursuing an investment grade rating.
Wilderotter noted that the deal will be accretive to Frontier on a free cash flow basis by the second year, noting the $500 million in merger cost savings.
As a result of the deal, Frontier is lowering its dividend payout ratio. Wilderotter said the move was designed to sustain its long-term dividend strategy, and frees up some cash for investment into Verizon's territories.
Further value could be created by building out high-speed Internet access to Verizon's territory, which could yield more revenue for the company, Wilderotter said. Improving the local presence in those regions will be key, she added.
"Rural America is our business," she said, noting the company's "manical focus on local."
Frontier can also tap into the stimulus package's focus on broadband investment.
"It's clear the Obama administration has a focus on bring broadband to rural America," she said.
One of the biggest integration hurdles is the conversion of billing systems from Verizon to Frontier. Wilderotter said she is confident that the conversion will be smooth. She added that ahead of the deal closing, Frontier will set up its products, promotions and offerings in the Verizon system.
"We can hit the ground running," she said.
Wilderotter said she doesn't foresee any problems with the unions representing the 11,000 Verizon employees moving to Frontier.
Wilderotter added that she approached Verizon on pursuing a deal. The company said talks had gone on for the past two months.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com
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