Frontier sells territories in 4 states for $1.35B
A private equity investment syndicate is buying Frontier Communications territories in four western states, paying $1.35 billion for the operations, weeks after investors sent the company’s CEO and board of directors a loud critique on his stewardship of the telephone giant.
Frontier generated revenue of $619 million and profits of $42 million over 12 months through March from the territories in Washington, Oregon, Idaho and Montana, with the company having about 350,000 customer accounts in the four states, including about 150,000 customers getting broadband over fiber optic cable.
It is Frontier’s first major divestment since spending $10.5 billion three years ago to acquire Verizon Communications territories in Florida, Texas and California, in the process incurring significant debt that the Norwalk-based company has vowed to trim as loans reach maturity in the coming years.
Under CEO Dan McCarthy, Frontier has been chipping away at its debt obligations across several fronts, including job cuts and the sale of real estate including operations centers and wireless towers. After losing $87 million in the first quarter on revenue of $2.1 billion, Frontier’s debt load totaled $16.9 billion.
Shares climbed 10 percent Wednesday to $1.90, a quarter of their level of a year ago on an adjusted basis and with shares having topped $125 just over four years ago.
The western operations are being sold to WaveDivision Capital, a Kirkland, Wash.-based investment firm created by Steve Weed who founded Wave Broadband providing service in Washington, Oregon and California. The company was sold two years ago for nearly $2.4 billion to TPG, which merged it with RCN to form what at the time was the sixth largest cable company in the country.
“We are big believers in the Northwest’s future growth opportunities and that future runs on broadband,”
Weed said in a prepared statement issued in tandem with Frontier’s corporate statement. “We know what it takes to bring fiber and other advanced services to residential and business customers, give them choices, and keep them happy.”
Searchlight Capital invested alongside WaveDivision on the Frontier deal, with its managing partner in New York City Eric Zinterhofer the lead independent director on the board of Charter Communications, the nation’s second largest cable company based in Stamford.
The transaction is subject to the approval of the U.S. Department of Justice, Federal Communications Commission, state regulators and local boards that oversee cable TV franchises.
Only three weeks ago, Frontier investors voted down the company’s proposed compensation for McCarthy and other corporate officers, after approving executive compensation overwhelmingly only a year earlier that at $2.9 million for McCarthy represented a slight decline.
As the case with many other public companies, Frontier’s board solicits the “say on pay” feedback on an advisory basis only, with the board’s compensation committee led by former Verizon executive Virginia Ruesterholz.