Karishma Vanjani
Frontier stock gained 38% on Wednesday after The Wall Street Journal reported that Verizon Communications was in advanced talks to acquire the Dallas-based fiber provider. Investors who missed out on the initial wave of gains, may now want to look at who the next potential beneficiary could be.
Here's what we know. Verizon likely will be hard-pressed to do another deal after the $20 billion all-cash acquisition of Frontier, though it's possible if it's the right deal. T-Mobile also looks constrained. It recently bought budget wireless provider Mint Mobile and in May announced plans to buy most of U.S. Cellular's wireless operations and some of its spectrum assets , with a purchase price of $4.4 billion, including cash and debt. AT&T, though, has no such encumbrances.
As for targets, two stand out. First is Lumen Technologies, formerly CenturyLink. This nearly $6 billion company has expanded through acquisitions, including the $25 billion Level 3 Communications merger in 2017, which increased its debt profile and enterprise customer base.
The company as a whole isn't the best fit for Verizon. Verizon's Enterprise and overall segment catering to businesses has been on a general sales decline trend, so Level 3 doesn't make much sense. But Lumen's ILEC -- Incumbent Local Exchange Carrier -- business, which includes millions in fiber subscribers in 16 states, primarily on the West Coast, looks interesting.
Jonathan Chaplin in a note on Friday, suggested a scenario where Verizon acquires Lumen and spins out its own enterprise business along with Level 3. Verizon has about 18 million fiber locations growing by 500,000 annually, so adding Lumen and Frontier could take fiber locations to 43 to 47 million by the end of the decade, he wrote.
Investors should also look at Uniti. In May, the company announced its decision to buy part of Windstream to improve its position as a broadband supplier for the nation's largest companies and expand within Tier II and III markets. Frank Louthan of Raymond James said on Friday that the company is on track to resemble a smaller version of Frontier by the first half of 2025.
Barron's had recommended buying Frontier's stock at around $14 last summer. At the time, Barron's liked the company's growth potential and the acquisition by Verizon wasn't in our model. Investors looking into either company should weigh the fundamentals against the potential of a merger.
Because timing the market is hard. For an investor to earn $40,000 or more from a $100,000 investment in Frontier Communications, one way would have been to buy the stock when it was somewhere below $30 in recent days and sell before Wednesday's close.
You'd need a crystal ball for that kind of careful timing.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
September 06, 2024 11:12 ET (15:12 GMT)
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