Notable Mergers and Acquisitions of the Day 5/13: FTR/VZ, SUFB
Up)- Frontier Communications Corporation (NYSE: FTR) signed a definitive agreement with Verizon Communications Inc. (NYSE: VZ) under which Frontier will acquire approximately 4.8 million access lines from Verizon. The all stock transaction is valued at approximately $8.6 billion.
The transaction will create the largest pure rural communications services provider and the nation’s fifth largest incumbent local exchange carrier (ILEC) with more than 7 million access lines, 8.6 million voice and broadband connections and 16,000 employees in 27 states. Frontier will offer broadband, new bundled services and expanded technologies to customers across its expanded geographic footprint.
Under the terms of the agreement, Verizon will establish a separate newly formed entity for its local exchanges and related business assets in 14 states. SpinCo will be spun off to Verizon’s shareholders and simultaneously merged with and into Frontier. The transaction has been approved by the Boards of Directors of Frontier and Verizon, and is expected to be completed within approximately 12 months.
The transaction is extremely compelling for all stakeholders of Frontier. It will provide Frontier with enhanced scale and scope, improved positioning, a strong balance sheet, and greater cash flow generation capabilities. For the fiscal year ended 2008, the combined company would have had on a pro forma basis revenue in excess of $6.5 billion, EBITDA of approximately $3.1 billion, free cash flow of approximately $1.4 billion and would have had leverage of 2.6 times EBITDA at December 31, 2008.
SpinCo will carry approximately $3.333 billion of debt consisting of a combination of newly issued debt as well as assumed debt already issued by entities that are being contributed to SpinCo. Verizon will receive approximately $3.333 billion of cash or debt relief. Verizon will then spin off SpinCo pro rata to its shareholders and SpinCo will immediately merge with and into Frontier. Verizon’s shareholders will receive shares of Frontier common stock in connection with the merger in an amount to be determined at closing, which is expected to have a value of approximately $5.25 billion.
The exact number of shares to be issued by Frontier will be determined based on Frontier’s 30-day weighted average closing share price ending 3 trading days prior to closing, subject to a collar such that in no case will the Frontier common stock price, for the purpose of determining the number of shares of Frontier common stock to be issued to Verizon shareholders at closing, be lower than $7.00 or higher than $8.50. Depending on the trading prices of Frontier shares just prior to the closing, upon the closing of the transaction, Verizon shareholders will own between approximately 66 and 71 percent of the new company, and Frontier shareholders will own between approximately 29 and 34 percent. Verizon will not own any shares in Frontier after the merger. Both the spin-off and merger are expected to qualify as tax-free transactions, except to the extent that cash is paid to Verizon shareholders in lieu of fractional shares.
Frontier will acquire Verizon access lines in Arizona, California, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, Wisconsin and West Virginia.
- First Bankshares, Inc. (Nasdaq: SUFB) and Xenith Corporation announced their intention to merge. Upon closing of the merger, the combined organizations will operate as a one-bank holding company under the name Xenith Bankshares, Inc.
Under the terms of the merger agreement, shareholders of First Bankshares may elect to retain their shares of First Bankshares common stock or to receive $9.23 in cash per share, subject to pro ration in the event the aggregate cash elections exceed 25% of shares outstanding as of the closing of the merger. Shareholders of Xenith Corporation are expected to receive between approximately .90 and .98 shares of First Bankshares common stock for each share of Xenith Corporation common stock owned at the time of the merger, with the exact exchange ratio determined at closing based on Xenith's book value at such time.
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