WSJ: Verizon In Talks To Acquire Frontier Comms Despite Above-Target Leverage

Baa1/BBB+/A-

Surprising move that seems potentially negative over the ST given already-above target leverage albeit the move will bolster Verizon’s fibre credentials where it had been lagging AT&T as the deal would lift total subscribers to over 9mn while AT&T sits just below 9mn.

• WSJ has reported that Verizon is in advanced talks to acquire Frontier Communications, potentially expanding its fibre network to compete with AT&T. Frontier's market value is over USD 7bn with over 3mn locations across 21 states, having emerged from Chapter 11 in 2021 after a heavy debt load led to a 2020 bankruptcy.
• Deals seems surprising given Verizon’s mobile ops have been in focus recently, other carriers such as AT&T have been more fibre focussed (though this is also likely the motivator) and given Verizon remains above their leverage target (2.5x vs. 1.75-2x as of H124). They were linked to a split deal for UScellular’s mobile operations earlier in the year though it was just TMUS who moved forward with the deal which we thought underscored their focus and leverage.
• Frontier reported net leverage of 4.6x at H1. Pro-forma ratio looks like ~2.7x based on the USD 7bn MV though this is pre-premium and pre-synergy.