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JANA Partners Sends Letter to Frontier Communications' (FYBR) Board

December 4, 2023 3:39 PM EST

JANA Partners ("JANA"), a shareholder of Frontier Communications Parent, Inc. (NASDAQ: FYBR) ("Frontier" or the "Company"), today sent a letter to Frontier's Board of Directors (the "Board") reiterating the urgent need for the Board to immediately engage in a comprehensive review of strategic alternatives to maximize value for shareholders.

The full text of the letter follows:

December 4, 2023

Board of Directors
Frontier Communications Parent, Inc.
1919 McKinney Avenue
Dallas, TX 75201

Board of Directors,

JANA Partners ("we" or "us") is writing to follow-up on our dialog with Frontier Communications ("Frontier" or the "Company") regarding timely actions the Company's Board of Directors (the "Board") should take to reverse Frontier's poor share price performance and unlock value for shareholders.

As we have expressed publicly and in direct conversations with the Company, we believe Frontier's equity is grossly undervalued and that it will continue to underperform if the Board maintains the status quo. Accordingly, we are calling on the Board to immediately commence a comprehensive review of strategic avenues for shareholder value creation, including evaluating a sale transaction, a strategic partnership/joint venture, and/or the divestiture of non-core copper passings to accelerate Frontier's transition to a pure-play fiber provider. In our view, delaying implementation of corrective actions until next year after the planned investor update reflects a lack of urgency shareholders can ill afford.

Importantly, we wish for the Board to pursue whatever option generates the greatest risk-adjusted return for shareholders. Based on our discussions with potential strategic and financial buyers who have indicated interest in participating in a Company-initiated review process, we believe that a bona fide evaluation of strategic alternatives would lead the Board to conclude that a sale transaction offers the best risk-adjusted outcome for shareholders. However, this can only be determined by conducting such a review.

A Board-led review of alternatives is certainly preferable to an unnecessarily distracting campaign to force this warranted action. As such, we would be highly supportive of the Board should it commit to this review.

Frontier Has Failed Its Shareholders as a Public Company

We believe Frontier's failed tenure in the public markets stems in part from its inability to attract new investor interest. Despite exiting bankruptcy more than two years ago, Frontier continues to be held largely by the same credit funds it emerged with post restructuring. In fact, since the beginning of 2022, Frontier has managed to attract only two new top 20 shareholders other than JANA Partners.

Frontier's failure to attract new fundamental investors more than two years after its reorganization is even more alarming given many dynamics that would typically garner significant investor interest and attention, including:

  1. A more than 50% decline in Frontier's stock price in the two-year period through the middle of September, right before JANA's purchases began impacting the stock price;
  2. A median analyst price target ~100% above the stock price prior to the disclosure of our involvement;1
  3. Two favorable recent features in Barron's: Frontier Stock Has an Activist Investor. It's a Positive Catalyst. (10/20/23) & Buy Frontier Communications Stock. High-Speed Internet Will Boost Shares. (7/18/23);
  4. Achieving key execution milestones towards Frontier's goal of 10 million fiber locations, progressing significantly towards the Company's long-term penetration target for its base fiber footprint, and sustainably growing customer ARPU across its footprint;
  5. Continued substantial private equity investment activity in the sector, including by leading firms such as Apollo, Ares, EQT, KKR, Madison Dearborn, Searchlight, Oak Hill and Macquarie;
  6. Ares, a private equity firm and Frontier's largest shareholder, taking the highly unusual step of filing a 13D with the SEC in May, and then continuing to purchase shares in the open market;
  7. Large strategics publicly highlighting the value of fiber-to-the-home in a converged offering;2 and
  8. Executing an innovative ABS financing of select fiber passings this past summer at a valuation that would imply substantial equity upside to Frontier.

Substantiating our concerns about the Company's inability to create value in the public market, Frontier has also significantly underperformed its stated peers and the S&P 500.

Total Shareholder Returns3

1-Year

2-Year

Since Listing

Frontier

(43.9 %)

(55.5 %)

(46.0 %)

Proxy Peer Median

1.2 %

(10.0 %)

(16.2 %)

Frontier Rank

13 / 16

13 / 16

12 / 16

S&P 500

10.4 %

3.3 %

11.2 %

Frontier's ability to reverse its decline in the public market by attracting new investors faces multiple structural impediments. These impediments include:

  1. A highly complex and leveraged balance sheet that only a credit investor could love (and understand) that is unlikely to improve in the medium-term;
  2. A debt funded, capital intensive growth strategy coming at the expense of free cash flow, which analysts do not expect to turn positive until 2027;[4]
  3. Frontier's past being marred by poor performance and the bankruptcy filing itself, biasing portfolio managers and sector research analysts against reinvesting in the Company;
  4. The ongoing complexity and business risk stemming from the transition from copper to fiber; and
  5. An uncertain FCC regulatory environment.

Frontier's inability to drive value as a listed entity has been compounded by a dramatically different interest rate outlook, elevated cost inflation, and a weakening macroeconomic backdrop since the Company re-entered the public markets in 2021. These simple facts require the Board to recalibrate any preconceived valuation expectations derived in years past.

While it should be self-evident that the status quo has fallen short by failing to deliver value for existing shareholders and not attracting new ones, Frontier nevertheless continues to express publicly its supreme confidence in its strategy and execution. Even more perplexing than the Company's expectation of a different result from the same strategy is the fact that, despite their professed confidence, neither the Board nor management has made a single open market purchase of Frontier stock in nearly two years – while Frontier's shares declined by more than 50%.

As you know, JANA Partners seeks to work collaboratively with companies in which it invests, and our objectives are fully aligned with those of all shareholders. We bring a 22-year track-record of successfully unlocking shareholder value in public companies and hope to realize a similarly successful outcome for Frontier's shareholders.

We look forward to the Board's prompt response.

Sincerely,

Barry Rosenstein
Managing Partner & Co-Portfolio Manager
JANA Partners

Scott Ostfeld
Managing Partner & Co-Portfolio Manager
JANA Partners

About JANA Partners

JANA Partners was founded in 2001 by Barry Rosenstein. JANA invests in undervalued public companies and engages with management teams and boards to unlock value for shareholders.



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