Verizon Communications (VZ) has agreed to buy smaller rival Frontier Communications (FYBR) in an all-cash deal worth $20 billion. Verizon has offered $38.50 per share to buy all of the outstanding common stock of Frontier. The deal represents a 37.3% premium to Frontier’s closing price on September 3, a day before the Wall Street Journal first reported the potential buyout news.
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VZ shares are up 1.2%, while FYBR shares are down 9.9% in premarket trading as of the last check. In contrast, VZ shares fell 3.4%, while FYBR shares skyrocketed nearly 38% on the news on September 4. If the deal falls apart for any reason, Verizon will pay Frontier a fee of $590 million.
Potential Synergies of the Verizon-Frontier Deal
Verizon is one of the largest wireless carriers in the U.S. based on subscribers. Its Fios-branded fiber network has 7.4 million subscribers in nine states and Washington, D.C., while Frontier has 2.2 million fiber subscribers spread across 25 states. By acquiring Frontier, Verizon can leverage its solid fiber network to compete with rivals such as AT&T (T), which is also investing heavily in the space. The competitive landscape in the telecommunications sector is being disrupted by carriers that provide discounted wireless services.
Additionally, the deal is expected to be accretive to Verizon’s revenues and adjusted EBITDA growth upon its completion. Also, it is forecasted to save at least $500 million in annual costs by the third year. The acquisition is expected to close in roughly 18 months but is subject to shareholder approval. Verizon also reaffirmed its full-year Fiscal 2024 guidance.
Website Traffic Hints at Verizon’s Modest Growth
Verizon’s Frontier acquisition comes at a time when it is facing difficulty growing its subscriber base as can be viewed from the modest growth in its website traffic. According to TipRanks’ Website Traffic tool, the total estimated visits to Verizon’s website worldwide increased by a mere 4.41% in the year-to-date period compared to last year.
Is Verizon a Buy or Sell Stock?
Analysts remain divided on Verizon stock’s trajectory amid heated competition in the telecom space. On TipRanks, VZ stock has a Moderate Buy consensus rating based on seven Buys versus seven Hold ratings. The average Verizon Communications price target of $45.68 implies 10.1% upside potential from current levels. VZ shares have gained 15.5% so far this year.
